Value of Rupee lowered down. Is it a hit on your pockets? 

The Indian rupee has been marked down by 14 paise, 77.69 against the US dollar. While tracking the persistent foreign fund outflows and elevated global crude oil prices, this depreciation took place. For the first time ever, the currency breached 77 against the dollar in March. 

Impact on the Economy:-

The impact on the economy and various aspects like imports, fuel prices and the rise in inflation has been seen as the impact of the depreciation of the Rupee. On Thursday, the rupee was recorded low at a value of 77.72 against the Dollar currency. Markets were at a loss of 6% which has impacted the market by rising inflation, the exiting of foreign investors and the rise in interest rates, also impacting the economy of India at large.  

As per the recorded Sensex, it was marked down by 2% or 1085.18 points to 53,123.35. Share markets also stumbled down on Thursday due to the decreasing value of the Rupee. The Reserve Bank of India has stated that almost every 5% of depreciation in the Rupee, adds about 10 to 15 bps to inflation.  

Effects on the Common man’s pocket:-

Moreover, the falling value of the Indian currency makes the current account of the country, a deficit as we import total 80% of the crude and the prices of the crude is not decreasing, putting pressure on the economy, particularly on the external front. As far as the Indian citizen is concerned, inflation is one of the huge impacts on the pockets of the common man of India.  

According to the inflation figures, the march was recorded as 6.9 to 7%, which is already very high. And it was expected that in April its expected reach is 7.5%. So, when the inflation is already so high for the depreciation of the Indian currency is going to be catastrophic for a significant portion of the population. The down value of the Indian currency is going to hit primarily in terms of human welfare. Given the fact, that is the rise in the oil price usually depends on the depreciation of the Rupee as the country imports large volume of oils, so the impact is directly seen.  

Reasons for Rupee depreciation:-

Stating the fact that if demand for any currency increases, its value also increases and if the demand declines, its value also decreases. And so, if foreign investors invest in India, they have to first convert their currency into the Indian rupee, thus increasing demand. But if India imports various commodities like crude oil, gold etc., it has to make the payments in dollars, thus weakening the Rupee against the US currency. The rupee has been gradually depreciated due to India being a net importer over time. On average, the Indian currency is falling around 3.7 per cent every year against the US currency.  

One of the main reasons, for the Rupee’s depreciation, is Overseas investors are exiting the Indian market. Foreign investors are exiting their investments in India, due to the increase in the interest rate of the US and the Russia-Ukraine war. Moreover, since Global Oil prices have spiked up more than 60% since 2022, and India being a net importer of crude oil, has to convert Indian currency into dollars thus, increasing the demand for dollars.  

The Rupee depreciation will impact the finances at a huge rate as if the rupees weaken the imported crude oil would be more expensive. Also, commodities like mechanical and electrical machinery for precious metals like gold would have an increase in their rates.  

As the companies would not be able to absorb the increase in the rate, this may pass to the consumers and the inflation would reach high. To keep inflation in balance, RBI increases the interest rates. Thus, increasing the interest rate on loans and deposits. Also, investment in stocks and equity Mutual Funds would also witness a decline.

Suggested Solution to cope up:-   

A simple solution to deal with the Rupee depreciation would be by investing in International Funds to get exposure to foreign currency by investing in rupees.