Dollar gaining strength against Indian Rupee means bad news for your personal finances

Here’s how to protect your finances against rising dollar.

Dollar gaining strength against Indian Rupee means bad news for your personal finances
Your personal finances get impacted both directly and indirectly by a falling or weaker rupee.

Against US Dollar, the Indian Rupee has fallen to around Rs 81.50 from roughly Rs 73.21 a year ago, a decline of about 9.5%! In other words, over the past 12 months, the dollar has appreciated 9.5% against the Indian rupee. The US Fed is anticipated to continue hiking rates in the US in 2022 and maybe as early as 2023, which has contributed to the INR’s decline versus the dollar since January and may continue to do so.

“USD INR spot closed 53 paise higher 81.87, a whisker away from the closing all-time high of 81.94. Strong demand for dollars from large corporates and FPIs kept the pressure on the currency. Over this week, the major trigger remains US ISM surveys and jobs data. We could see RBI intervention increase if USD INR moves above 82 levels. An overall range of 81.50 and 82.30 remains in focus,” says Anindya Banerjee, VP, Currency Derivatives & Interest Rate Derivatives at Kotak Securities Ltd.

Why is it called Rupee Weakness against Dollar? Here’s why, in 2017 you had to shell out Rs 64 to buy a dollar but now you need over Rs 80, thus reflecting a weaker INR. This also shows that INR depreciated by almost 5 percent on an annualized basis against the dollar. On the other hand, a stronger Rupee means you need less of Indian currency to buy dollars than before.

Your personal finances get impacted both directly and indirectly by a falling or weaker rupee. There are also effects on the economy, both good and bad. Exporters stand to win when the INR declines, but as India is predominantly an import-dependent nation, the consequences of a weak INR are more severe.

The cost of some commodities rising and resulting in inflation is an indirect effect. Since India is a significant oil importer, the impact of a weakening INR extends to other items as well. Imported goods become more expensive and therefore weakening INR is one factor contributing to rising inflation at the moment. The cost of items is rising as a result of an increase in even the imports of consumer goods’ component parts.

This has an indirect effect as well because your loan EMI increases at a time when the INR is depreciating. When inflation increases, the RBI uses tools like the repo rate to try to control it. Repo rate increases cause interest rates to rise, which raises the cost of borrowing. Both commercial and retail borrowers would now pay higher EMIs and borrowing expenses than in the past. RBI on September 29 raised the repo rate yet again by 50 basis points taking the total rate hike in 2022 to 190 basis points.

Sending dollars for international education will get expensive unless you have INR saved in a foreign account. To protect themselves against declining INR, international students should ideally keep money in foreign bank accounts.

The cost of taking your family on an international vacation will increase. If the dollar has strengthened, there will be a greater outflow of Rupee when you exchange INR to buy dollars through banks, credit cards, etc.

Also Read: INR crosses 81! Rupee depreciation against the dollar works in favour of these investors

Here’s how to protect your finances against a rising dollar

Long-term INR weakness against the dollar may take some time to reverse. If you are considering sending your children to a foreign school, then you may consider buying US equities or parking money in a foreign bank account. The Reserve Bank of India’s (RBI) Liberalized Remittance Scheme governs remittances made overseas. All residents, including minors, are permitted to freely transfer up to USD 2,50,000 per financial year (April – March) for any legal current or capital account transaction, or a combination of both, under the Liberalized Remittance Scheme.

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