The Indian rupee hit a record low by falling to 80.01 against the US dollar on Tuesday. The rupee had closed at 79.97 on Monday.
Like most Asian currencies, the rupee has been falling in recent months as expectations of aggressive US Federal Reserve policy tightening to curb stubborn inflation prompt investors to dump riskier assets, reported Reuters.
Not just Asia, currencies all round the world have been struggling against the USD. 1 euro fell to less than 1 USD last week. That's the first time in 2 decades.
Rupee's previous declines
There is, however, nothing sudden or unpredictable about this downfall. The rupee's previous trends of decline were foreseen by experts, and this downfall was expected.
Here is a graph that shows the rupee’s downfall over the past month (tap on the boxes to know the average value of the INR on the respective date):
Reasons for the downfall: A simple supply-and-demand chain determines the value of the Indian rupee against the US dollar. The value of the Indian rupee is inversely proportional to the demand for the US dollar. With the dollar having gained over 10% this year and now reaching a 20-year high, imagine how the rupee is doing.
Some other reasons for the downfall are listed below:
Disruption in the supply chain due to the Russia-Ukraine war: Whenever a country imports more than it exports, the dollar becomes more in demand, causing the indigenous currency to lose its value in relation to the dollar, such as the rupee in India.
Out-flows of foreign portfolio investors: As interest rates increased, investors began to pull out of Indian markets. Now, in order to understand the impact of Foreign Portfolio Investors (FPIs) pulling out of the market, let's examine some numbers:
How does it affect us? It is expected that this downfall will continue to cause the rupee to depreciate at 82 for this quarter.