Reasons why the rupee is falling every day

By | August 28, 2013

The rupee fell past 69 to the dollar to a record low on Wednesday, plunging as much as 4 per cent to hit 69.08, The rupee has fallen by 9 % in the last few trading sessions. Here are 10 main reasons that experts say are responsible for the Indian rupee — which has depreciated as much as 20 per cent this year — to touch new lows each passing day:

  • Food Security Bill, after it got passed in LS day before yesterday, Rupee took it for a ride and fall got accentuated from past 2 tradign session. It is an ambitious program by Sonia Gandhi which Indian Economy is not willing to bear.
  • Low forex reserves: India’s foreign exchange reserves are enough to cover imports of only seven months. The forex reserves have declined in the recent months. Due to low reserves, the RBI can’t intervene aggressively in the currency markets.
  • Growth slowdown: India’s gross domestic product (GDP) growth fell to a decade low of 5 per cent in 2012-13. The situation is unlikely to improve much this year. Foreign investors are pulling money out of the Indian markets due to slow growth. We will get latest Figure on GDP on 30 which will show how grave the situation is.
  • Widening current and Fiscal account deficit: This is resulting in creating more actual as well as speculative demand for the dollar and other convertible currencies. India’s current account deficit was financed by foreign money for the last many years. Withdrawal of money by overseas investors is leading to the weakness in the rupee.
  • Recovery in the US: The slow but steady recovery in the US is making the greenback stronger against other currencies. With Recovery in USA,Fed will withdraw or ease the fiscal stimulus package could potentially put the brakes on funds for developing economies.
  • Capital controls: The decision by the Reserve Bank and the government to impose temporary restrictions on capital flows has not gone down well with the markets, as it will not only discourage Indian companies from investing abroad, but also foreign firms from pumping money into India.
    Trends in other markets: The rupee is also following the trend seen in the currencies of other emerging economies such as Brazil, Indonesia, Russia and South Africa.

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