Impact on imports: Global factors causing rupee fall against dollar

The minister said currencies such as the British pound, the Japanese yen and the Euro have weakened more than the Indian rupee against the US dollar.

Impact on imports: Global factors causing rupee fall against dollar
The depreciation of the currency is likely to enhance the export competitiveness, which  in turn impacts the economy positively.

Finance minister Nirmala Sitharaman on Monday said global factors such as the Russia-Ukraine war, soaring crude oil prices and tightening international financial conditions are the major reasons for the weakening of the rupee against the dollar.

For the first time, the domestic currency dropped below the psychological 80-mark against the dollar in intra-day trade on Monday, before ending the session 16 paise lower at 79.97.

The depreciation of the currency is likely to enhance the export competitiveness, which  in turn impacts the economy positively. “The depreciation also impacts the imports by making them more costly. The Reserve Bank of India (RBI) regularly monitors the foreign exchange market and intervenes in situations of excess volatility,” Sitharaman told the Lok Sabha.

The minister said currencies such as the British pound, the Japanese yen and the Euro have weakened more than the Indian rupee against the US dollar. Therefore, the Indian rupee has strengthened against these currencies in 2022, she added.

The domestic currency has lost about 7% against the dollar since January. However, as FE reported on Monday, the rupee has risen 4.97% against the euro, 6.25% against the British pound and 12.25% against the Japanese yen until July 15 this calendar year.

Sitharaman said the outflow of foreign portfolio capital is a major reason for the depreciation of the rupee. “Monetary tightening in advanced economies, particularly in the US, tends to cause foreign investors to withdraw funds from emerging markets,” she said. Foreign portfolio investors have withdrawn about $14 billion from Indian equity markets so far this fiscal, she added.

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