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One of the main reasons for the depreciation of INR has been the broad-based strength of the USD
On Monday, the rupee depreciated 12 paise to close at an all-time low of 84.72 against the US dollar. (Representative image)
The rupee fell 4 paise to an all-time low of 84.76 against the US dollar in early trade on Tuesday, as the strength of the American currency in the overseas market and unabated foreign portfolio outflows dented investor sentiments.
Forex traders said the depreciation in the rupee was largely because of Donald Trump’s rhetoric on BRICS currency, political instability in the Eurozone, weaker domestic macroeconomic indicators and unabated foreign portfolio outflows.
President-elect Donald Trump on Saturday threatened a 100 per cent tariff on the BRIC bloc of nations if they act to undermine the US dollar.
Moreover, market participants also await cues from the upcoming RBI monetary policy on December 6, which will likely focus on balancing inflation and growth.
At the interbank foreign exchange, the rupee opened at 84.75, moved in a tight range, and touched an all-time low of 84.76 against the greenback, registering a fall of 4 paise over its previous close.
Impost Costs To Rise
Pravesh Gour, Senior Technical Analyst, Swastika Investmart, said, “Since a weaker rupee raises the cost of imports and may result in higher inflation rates, the recent drop of the Indian rupee vs the US dollar has important ramifications for the Indian economy.”
Impact On Customers
Gour highlighted that customers may be harmed and their purchasing power diminished. The growing expense of servicing foreign currency debt represents a hardship for companies that have such debt, he added.
Costly Affair
Gour pointed out that Indian businesses may find it more costly to obtain money overseas if their currency depreciates since it can undermine investor confidence.
“The timing of a rupee reversal is unpredictable and contingent on a number of variables like the rupee might gain from a downturn in the US economy or a weakening of the US currency. The rupee can be stabilised with the support of stronger economic development and better export results. The rupee can be supported by the RBI intervening in the foreign exchange market, although this is a temporary solution,” Gour said.
“It’s crucial to remember that the economy doesn’t always suffer when the rupee declines. It might be a normal response to shifting international economic circumstances. On the other hand, economic instability may result from excessive depreciation. The secret is to balance the risks and rewards of managing the exchange rate,” Gour added.
On Monday, the rupee depreciated 12 paise to close at an all-time low of 84.72 against the US dollar.
The dollar index, which gauges the greenback’s strength against a basket of six currencies, was trading higher by 0.07 per cent at 106.51.
Brent crude, the global oil benchmark, rose by 0.18 per cent to USD 71.96 per barrel in futures trade.
What Government Said
Meanwhile, Minister of State for Finance Pankaj Chaudhary on Monday said in Parliament that the rupee remains one of the best-performing Asian currencies despite geopolitical tensions in the Middle East and other headwinds, indicating India’s sound economic fundamentals.
One of the main reasons for the depreciation of INR has been the broad-based strength of the USD, he said.
“During CY 2024, Dollar Index has increased by about 4.8 per cent till November 19, 2024. More recently, the Dollar Index touched 108.07 on November 22, 2024, its highest in more than a year, exerting pressure on emerging market currencies,” he said.
Further, geopolitical tensions in the Middle East and uncertainty surrounding US election results also added to the headwinds.
The depreciation of a currency is likely to enhance export competitiveness, which in turn impacts the economy positively. On the other hand, depreciation may raise the prices of imported goods.
He further said the RBI monitors key developments across the globe which may have an impact on the USD-INR exchange rate.
(With PTI inputs)
