Why Indian rupee is falling against the US dollar

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Updated: January 21, 2016 3:14 PM

The rupee started at just above 66 on January 1, 2016 but since then has been moving sharply downwards with the currency crossing the 67 level on the January 14, 2016 and the 68 mark on the January 20.

Indian rupee vs US dollarThe rupee started at just above 66 on January 1, 2016 but since then has been moving sharply downwards with the currency crossing the 67 level on the January 14, 2016 and the 68 mark on the January 20.

Like the stock markets, the Indian rupee has been witnessing turmoil against the dollar ever since the beginning of this year. The Indian currency tested the 28-month low of 68 against the dollar on Wednesday, last seen in September 2013.

The domestic unit opened lower at 67.77 per dollar on Wednesday as against Tuesday’s closing level of 67.65 and breached 68 level for the first time since September 4, 2013, to hit intra-day low of Rs 68.07, down 42 paise and closed at 67.95/96 against the dollar. The rupee had hit the record intra-day low of 68.85 in September 2013. It had last touched 68.62 a dollar on September 4, 2013.

Finance Ministry on Wednesday said it is keeping a close watch, along with RBI, on the domestic currency’s movement and hoped that market volatility will stabilise soon. “The central bank and the finance ministry…we are keeping a close watch. We are monitoring the situation. We are in constant touch and the central bank will deal with the situation as and when required,” Das said.

On Thursday, the rupee after a brief recovery again breached the 68-mark in late morning deals, depreciating by 10 paise to 68.05. The domestic unit resumed higher at 67.88 per dollar as against Wednesday’s closing level of 67.95. Later, it slid to 68.06 before quoting at 68.05 at 1040 hrs on Thursday.

The rupee started at just above 66 on January 1, 2016 but since then has been moving sharply downwards with the currency crossing the 67 level on the January 14, 2016 and the 68 mark on the January 20. “This movement was quite unexpected as the fundamentals had justified a level of 65-66,” said a CARE Rating report.

We take a look at reasons why Indian rupee has been falling against the US dollar

1. Global economic slowdown: This the major factor which is contributing to both the stock markets and Indian currency fall. China’s yuan devaluation has also been hurting the sentiments globally. China has been witnessing a slowdown, with the International Monetary Fund has reiterated and while slashing the global growth forecasts for the third time in less than a year on Tuesday (Jan 19). IMF has cited a sharp slowdown in China trade and weak commodity prices that are hammering Brazil and other emerging markets.

2. Crude oil prices: US is the biggest importer of crude oil. So when the crude prices go down, it means US will be saving more dollars to buy it, as a result dollar as a currency strengthens, leading to fall of Indian rupee and other currencies at the forex market.

3. FIIs have been in the sell off mode in equity segment for last 3 months. From Jan 1 to Jan 20, foreign institutional investors (FIIs) sold shares worth Rs 7,146 crore in the domestic equity markets. On the other hand, domestic institutional investors, or DII’s net buying stood at Rs 9,249 crore during the same period.

4. India’s Trade deficit: Exports contracted for 13th month in a row in December 2015 as outward shipments shrank 14.75 per cent to $22.2 billion amid a global demand slowdown. Imports too plunged 3.88 per cent to $33.9 billion in December over the same month previous year. Trade deficit during the month under review widened to $11.6 billion as against $9.17 billion in December 2014.

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