stock market And the decline in the Indian rupee is not stopping. Today, the rupee witnessed the biggest fall in almost 2 years in the interbank foreign exchange market. Rupee fell 57 paise to close at new all-time low of 86.61 (provisional) per dollar. Jefferies estimates that the rupee may fall to 88 in the mid-term. After all, what is the reason why the decline in the rupee against the dollar is not stopping? What will be the effect on your pocket due to loss of rupees? Let us know the answers to all these questions.
Understand the mathematics of increasing and decreasing currency prices.
The price of any currency in the foreign exchange market is determined based on the demand for the currency and its supply. This is similar to how the price of any other product is determined in the market. When demand for a product increases while its supply remains constant, it causes the price of the product to increase to limit the available supply. On the other hand, when the demand for a product falls while its supply remains constant, this forces sellers to reduce the price of the product to attract enough buyers. The only difference between the commodity market and the foreign exchange market is that in the foreign exchange market currencies are exchanged for other currencies instead of commodities.
What is the reason behind the fall in rupee?
The current decline in the rupee is mainly due to the outflow of money from India by foreign investors, which has put pressure on the rupee. Global investors are moving their investments around different countries as central banks are readjusting their monetary policies at different levels. Apart from this, the US dollar index is continuously strengthening. The dollar index, which measures the strength of the dollar against six currencies, has increased to 109.01. The yield on 10-year American bonds also increased to the April 2024 level of 4.69 percent. Its effect is also visible on the Indian rupee. Due to this the rupee is continuously weakening.
What will be the impact of rupee collapse?
The fall of rupee will have an impact on the Indian economy, general public and business world. Due to weakening of rupee, importing from abroad will become expensive. Due to this, the prices of essential commodities may increase. That means the burden of inflation will increase on you. For example, the importer had to pay Rs 83 for 1 dollar in October, but now it will cost Rs 86.61. India imports crude oil on a large scale. Importing crude oil will be expensive due to the strong dollar. This will increase trade deficit. Due to weakening of rupee, foreign investors withdraw money from the stock market. Its effect is visible now. Due to falling rupee, the budget for foreign travel or studies abroad will increase. At the same time, Indian exporters benefit from the weakening of the rupee, because their products become cheaper in the foreign market.
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