The Indian Rupee is not taking halt against US dollar, falling continuously to touch the lifetime low of 71.10 against the greenback. In today’s session, the currency got some relief after the good GDP numbers but failed to sustain and fell to an all time low levels. There are multiple factors behind falling Indian rupee against US dollar.
Global and Domestic Factors
The rising tensions between two biggest economies – the United States and China has taken toll on India rupee. Both the countries are in a race to slap tariff on each other’s imports. However, that is just one of the reasons why rupee has been under pressure. There has also been continuous outflow of foreign funds which is another concern and impacting the value of Indian rupee.
According to one report, foreign investors have taken out roughly Rs 15,500 crore from the Indian Capital market in April. The outflow has been the maximum in past 16 months on the back of rising crude price across the world and increase in yields of government securities. Forex dealers are worried that since India is a net crude oil exporter, sudden rise in price would only inflate the bill and current account deficit.
It is not just the global reasons that is causing the rupee to fall, rather we also have few homegrown causes of weakening currency. Since the fears are rising, the exporters have now cancelled their forward contracts and importers are trying hard to cover their obligations which is adding further pressure and nervousness. The United States suspected that India might be involved in currency manipulation like other countries such as China, Japan and Mexico, thus putting the country on the watchlist. Recently, the Turkish crisis also aided in further fall of the currency as Lira nosedives. Turkey has got into crosshairs with Washington as the emerging economy is increased the tariffs. This sent shockwaves across the emerging economies who fear that United States might keep on taking such steps.
Reserve Bank of India did interfere in the currency market in order to control further slip of Indian Rupee. Back in June, it was reported that RBI has sold around $800 million in dollars both on the spot and exchange traded future market. However, looking at the current scenario, it seems that it hasn’t helped much as the Rupee reels to all time low.
The government is however of the view that there is no need to fear since the Indian Rupee fall is the product of global factors and it has little to do with domestic factors. Experts also believe that alarm should not be raised as the growth story and fundamentals of India remain strong.