Write an Essay on topic - The effects of Falling rupee value on Indian Economy.
Answers
Answered by
4
The rupee suffered its biggest single-session fall in nearly three years on Thursday after a grim outlook on the US economy sent investors diving into safer currencies and government bonds. The Reserve Bank of India (RBI) was suspected of selling dollars in the forex market at around 49.15 rupees, traders said, but the selling pressure on the rupee was too high for it to contain the drop.
The rupee ended at 49.57/58 against the dollar, its lowest since 15 May 2009.
The currency's fall is the largest single-day fall since 12 November 2008 when it dropped 2.6 % during the peak of the global financial crisis post the Lehman Brothers bankruptcy.
A depreciating rupee affects the local economy in several ways.
One, it keeps the cost of oil imports relatively high. India imports more than 70% of its crude oil requirements. Oil prices tumbled more than four percent to six-week lows on Thursday as the US Federal Reserve's gloomy economic outlook and disappointing China manufacturing data fuelled fears of a global recession and pummelled markets. While Brent crude slipped to around $105 per barrel, the WTI (Wholesale Texas Intermediate) benchmark fell to around $80 per barrel. Yet, if the currency continues to depreciate, there's a high chance that India will not benefit because it will still have to pay more in local currency per barrel of crude oil, keeping our oil import bill high.

A declining rupee adds to the pressure on corporate margins through higher imported input costs.Reuters
Two, it can affect the current account deficit - the gap between foreign earnings against expenses (exports against imports plus net transfer payments). A falling rupee increases import costs while increasing export revenues in rupee terms. Since we have a deficit, our imports become more expensive (oil, by the way, is one of our largest imports) and, therefore, have the potential of increasing that deficit. Normally, foreign capital inflows help in bridging the gap and easing the overall balance of payments, which includes both the capital account and current account balances. But given the global risk aversion, those prospects could dim as investors are busy pulling out of relatively riskier emerging market assets. The fear is the deficit could move up by 0.5 % in the year ending March 2012.
Three, it has the potential to fuel inflation throughout the economy at a time when headline inflation is still above 9%. Higher oil import costs could translate into higher fuel costs, which will raise, or at least keep the pressure on the overall cost of economic activity. That will add to the headache of the RBI, which has been struggling to contain inflation, even at the cost of sacrificing short-term growth, by raising interest rates. A falling currency, if the trend continues, could compel the RBI to keep policy rates high for a longer time.
The rupee ended at 49.57/58 against the dollar, its lowest since 15 May 2009.
The currency's fall is the largest single-day fall since 12 November 2008 when it dropped 2.6 % during the peak of the global financial crisis post the Lehman Brothers bankruptcy.
A depreciating rupee affects the local economy in several ways.
One, it keeps the cost of oil imports relatively high. India imports more than 70% of its crude oil requirements. Oil prices tumbled more than four percent to six-week lows on Thursday as the US Federal Reserve's gloomy economic outlook and disappointing China manufacturing data fuelled fears of a global recession and pummelled markets. While Brent crude slipped to around $105 per barrel, the WTI (Wholesale Texas Intermediate) benchmark fell to around $80 per barrel. Yet, if the currency continues to depreciate, there's a high chance that India will not benefit because it will still have to pay more in local currency per barrel of crude oil, keeping our oil import bill high.

A declining rupee adds to the pressure on corporate margins through higher imported input costs.Reuters
Two, it can affect the current account deficit - the gap between foreign earnings against expenses (exports against imports plus net transfer payments). A falling rupee increases import costs while increasing export revenues in rupee terms. Since we have a deficit, our imports become more expensive (oil, by the way, is one of our largest imports) and, therefore, have the potential of increasing that deficit. Normally, foreign capital inflows help in bridging the gap and easing the overall balance of payments, which includes both the capital account and current account balances. But given the global risk aversion, those prospects could dim as investors are busy pulling out of relatively riskier emerging market assets. The fear is the deficit could move up by 0.5 % in the year ending March 2012.
Three, it has the potential to fuel inflation throughout the economy at a time when headline inflation is still above 9%. Higher oil import costs could translate into higher fuel costs, which will raise, or at least keep the pressure on the overall cost of economic activity. That will add to the headache of the RBI, which has been struggling to contain inflation, even at the cost of sacrificing short-term growth, by raising interest rates. A falling currency, if the trend continues, could compel the RBI to keep policy rates high for a longer time.
diyaduggal:
noo
means
tell na
hii
Similar questions