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Fall in Rupee Likely to Impact Indian Spending

Fall in Rupee Likely to Impact Indian Spending

The Indian Rupee has reached an all-time low against the US Dollar. As opposed to 76.98 in March, the Rupee has now dropped to 77.44. This will hurt the Indian economy which is already vulnerable to high inflation. 

This depreciaiton is because of a sell-off in equities due to concerns around weakening global economic growth prospects, an outflow of the Dollar and fears of further restraints on monetary policy by central banks to counter the advancing inflation. This year, foreign funds have also pulled out around $17.7 billion from Indian equities.   

Financial analysts have also said a recession in the foreign markets have resulted into this decline.  The United States-based stock markets like including NASDAQ and S&P 500, Tokyo’s Nikkei 225 and Hong Kong’s Hang Sang made losses on Monday.

Deepak Jasani, head of retail research at HDFC Securities, told Reuters, “Asian markets got off to a shaky start on Monday as US stock futures took an early skid on rate worries, while a tightening lockdown in Shanghai stoked concerns about global economic growth and possible recession.”

Some analysts declared that taming inflation would be an uphill task while some were more optimistic about the depreciating Rupee. The decline might be temporary as markets will be braced by IPO-related inflows to support the Rupee.

However, the Reserve Bank of India (RBI), on Tuesday, intervened across foreign exchange markets to stop the rupee from going past the 77.50 per dollar level. The central bank might have sold $500-$700 million in the spot market on the same day. The RBI now aims to maintain foreign exchange reserves of $600 billion due to the uncertainty.

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The declining Rupee is likely impact regular spending. Importing will be an expensive affair because of the dollar-rupee conversion. Oil imports, along with cars and appliances, are likely to get costlier. This hike in import rates might push inflation, thereby causing RBI to alter the repo rate. Banks will increase their lending rates, which makes loans less feasible. There might also be an expected hike in interest rates.

Stocks are likely to be impacted directly; there could be a sharp fall in equity markets, causing a decline in stock and equity mutual funds investments. Foreign education, along with travel, could also get more expensive. However, there is good news for non-resident Indians (NRIs) sending money to India as they will end up spending less dollars for more Rupee.  

 

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