On Monday (May 18), the Indian Rupee has fallen to its historical low against the US Dollar. Amidst the continuously increasing strength of the dollar, for the first time the price of one dollar has reached Rs 96.23. When the market closed on Friday, this figure was at 95.97, but as soon as the market opened after the weekend, heavy selling was recorded in the rupee.
Crude oil fire becomes rupee crisis
The biggest reason behind this huge decline is the continuously deepening geopolitical tension in West Asia. This crisis has sent the prices of crude oil skyrocketing in the international market. At present, Brent crude oil has crossed the dangerous level of $ 111 per barrel. Apart from this, the fear of any kind of blockage in the Strait of Hormuz, which is a major sea route for energy supply across the world, has scared global investors. Since India imports most of its crude oil from abroad, the country’s import bill increases rapidly due to increase in oil prices. Due to this concern, panic has spread among investors.
The surge in US bond yields spoiled the game
Not only expensive crude oil is responsible for this weakness of the rupee, but the economic signals coming from America are also working against it. In America, the 10-year treasury yield (return on bonds) has increased to 4.625%. Investors are beginning to feel that inflation around the world may persist for a long time, due to which the US Central Bank may further tighten monetary policies. When investors withdraw their money from emerging markets like India and invest in US bonds considered safe, Asian currencies come under heavy pressure.
How much relief will the Reserve Bank’s action give to the market?
Amidst this outcry in the currency market, the Reserve Bank of India (RBI) is continuously monitoring the situation. Traders in the foreign exchange market believe that the Central Bank had indirectly intervened in the market on Friday (May 15) to prevent the rupee from slipping beyond 96. However, market experts say that instead of insisting on saving any fixed level, the Reserve Bank will only try to control the sudden huge fluctuations of the rupee. In such a situation, it seems very difficult to stop this period of decline completely.
How will inflation affect the common man’s budget?
Expensive crude oil and weak rupee directly mean increase in imported inflation in the country. When India imports oil, electronic goods, machinery or other products, it will have to pay higher prices than before. Economists believe that if this situation continues for a long time, the fiscal balance of the country may deteriorate and the current account deficit may increase. Last week itself, weakness was seen in India’s bond market due to the same concern. This will impact transportation costs, due to which everything needed on a daily basis may become expensive.
