The rupee has crashed 6.79 per cent to close at 46.24 to a US dollar since March 31 against 43.3 on that day. This is followed by Indonesian rupiah which has fallen 6.68 per cent, Sri Lankan rupee which has dropped 6.06 per cent, Japanese yen which has taken a hit of 5.45 per cent and Thailands bhat which has skidded 5.15 per cent during the same period.
In contrast, the currencies of stable economies like Hong Kongs dollar, Korean won and Singaporean dollar had a relatively lesser impact of an appreciating US dollar.
According to Soumya Dutta, chief executive of eforexindia.com, There has been a sharp pull-out of foreign funds from the Indian markets earlier this fiscal which weakened the rupee. Since then, there has not been any fresh inflows leading to a shortage of supply of US dollars while the demand for it has remained high, leading to the depreciation.
He added that the government policies had not been very accommodating in terms of encouraging inflow of foreign flows into the country.
NK Mansukhani, another Delhi-based foreign exchange analyst, says, The sharp depreciation during the past few months comes as a correction as the rupee has been appreciating since June 2002. There seems to be a bias on the part of the government and RBI to let the rupee depreciate which is also healthy for the markets. The leftist thinking of discouraging foreign investments has also affected the currency as the inflow of foreign funds has diminished.
Inflation has also been creeping up, putting pressure on the rupee. The rupee has been on an upward journey against the US dollar and had appreciated from 48.96 on May 31, 2002 to 43.3 on March 31, 2004 gaining 11.56 per cent. In fact, in March alone the rupee saw a sharp appreciation of 4.12 per cent.