The question being asked these is “why is the rupee falling against the dollar”. The answer is very simple. The demand for American dollars was more than that of the Indian rupee leading to the rupee rapidly losing value against the dollar.
This situation is likely to continue in the days to come with the demand for dollars in India being more than their supply. And this will have a huge impact on the dollar-rupee exchange rate, which almost crossed 70 rupees to a dollar in recent weeks.
Collapse of Indian rupee to a lifetime low of 69.10 against the U.S. dollar will not give an extra edge to domestic exporters, but provide a level-playing field in global market, FIEO said.
The US dollar has appreciated against almost all the major currencies of the world in this year so far. The Dollar Index, which measures the greenback’s strength against major currencies of the world has appreciated over 3% this year to 95.25 level, compared to 92.25 level at the beginning of this year.
Concerns of a trade-war like situation between the US and other major economies such as China and the European Union also kept sentiments weak across markets. Foreign investors have been net sellers of Indian equities and debts this year so far putting pressure on the rupee.
India being a net importer of crude oil, rising crude oil price is not good for the country. Analysts believe this will increase India’s trade gap with other countries and deplete the country’s forex reserves resulting in further weakness in rupee.
A study showed that after currency depreciation people are grappling with inflated prices of the commodities which they use in their day to day life and the change in their spending and savings trends, a falling rupee will pinch students who are planning to go abroad or are presently studying outside India.
Federation of Indian Export Organizations (FIEO) director general Ajay Sahai said that the development will not provide any additional support to exporters as currencies of other emerging economies, including China, too are depreciating. “It will provide a level playing field to our exporters. It will not provide the much needed support as India is not singled out,” he said.
India’s exports grew 20.18% to $28.86 billion in May — the highest in six months — even though trade deficit widened to a four- month high of $14.62 billion. The rupee had touched a lifetime low of 69.10 against the U.S. dollar as rising crude oil prices deepened concerns about India’s current account deficit and inflation dynamics.