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2-min read

The Fall of The Rupee and the Brunt on The Aam Aadmi

The problem lies with the fiscal prudence measures of the government which does not allow the excise on fuel to be cut. Crude oil continues its upward trend and that does not help the fuel prices.

Chaiti Narula | CNN-News18

Updated:September 5, 2018, 1:46 PM IST
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The Fall of The Rupee and the Brunt on The Aam Aadmi
Image for representation. (Illustration by Mir Suhail/News18)
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New Delhi: The Indian rupee is hitting a fresh low everyday. The rupee which hovered at a comfortable Rs 68.50 to the dollar plummeted nearly 4 percent. The rupee that saw a positive opening this morning saw a fresh low of 71.79 to the dollar. The sell offs on Dalal street have begun and markets are already showing a bearish momentum.

Key reasons

A record low is being witnessed on the Indian currency on the back of the crisis in the emerging market currencies, a trade war with china, and strengthening of the dollar on back of speculative buying.

A Turkish lira downtick and rising crude oil prices are weighing the rupee down. Rising interest rates in the US and sharp FII sell out has been another factor.

India is currently importing much more than what it is exporting and it only makes the situation worse.

How it impacts you

A weak currency always hurts a country. Be it India or any other part of the world. Very simply, everything gets more expensive. This includes luxuries like holidaying overseas, buying imported goods like cars and smartphones, studying abroad. This has an inflationary tendency and everyday consumables can become more expensive for you. Vegetables, groceries, and the proverbial ‘roti, kapda makaan’ get costlier.

Rupee depreciation will also have a direct impact on home loans. This means it is a bad time to get into one. What’s another area of concern is imports. A weak rupee to the dollar ratio makes imports costlier for India. Some imports are inevitable. One of the main ones is oil where crude oil prices are already on the rise. It is a sure double whammy on the current account deficit front.

While this should be good news for exporters as each time rupee depreciates the exports go up for obvious reasons, the ongoing global trade war will negatively impact India on that front. The IT and pharmaceutical industries will hold fort comparatively better than other sectors as they bank on exports. But again, only if the global trade war enables that and doesn’t prove to be a hindrance.

It does not end there

Fuel prices are seeing no relief in sight. Experts have predicted fuel to touch a century mark soon and some say the rupee could touch a century mark by 2019 albeit that remains a distant possibility.

The problem lies with the fiscal prudence measures of the government which does not allow the excise on fuel to be cut. Crude oil continues its upward trend and that does not help the fuel prices. A rise in fuel prices with a depreciating rupee makes inflationary pressure inevitable. This also has a direct bearing on CPI and WPI inflation numbers and could perhaps have the RBI intervene in a rather orthodox fashion to go for a 25 basis points rate hike.

On the fear of not being able to meet the fiscal deficit target, a rate cut in excise is a far fetched possibility. In fact, sources have indicated the government is not likely to take any such steps despite having leveraged when crude traded around 35 thereabout dollars a barrel.

Way forward

Perhaps a change in repo rates by the RBI at the cost of domestic liquidity implications or fund raising through NRI bond issuance can be considered. We can only wait and watch and reiterate that money indeed does make the world go round!

| Edited by: Ashutosh Tripathi
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