Rupee depreciation: How it will affect you
Reema Sharma/Ajeet Kumar
New Delhi: Rupee has been continuing with its downward trend since a couple of months. Moving from bad to worse, the Indian currency hit new all-time low of 61.21 against the dollar on Monday after better-than-expected US jobs data raised concerns about the US Fed easing its stimulus programme.
The rupee opened at 60.95 a dollar compared with Friday's close of 60.22 and dipped to 61.21, past its previous all-time low of 60.76 on June 26.
The rupee bounced back after the Reserve Bank of India (RBI) intervened through public sector banks, reaching a high of 60.58 before settling at 60.61, still a fall of 39 paise, or 0.65 percent, the second straight day of losses.
The Finance Ministry, however, believes that the ‘unwarranted panic’ in the market will settle down in some time. Chief economic adviser Raghuram Rajan, too, is of the opinion that weakness in rupee could be a temporary phenomenon.
Rupee has depreciated over 13.50 percent in past nine weeks.
Strengthening of dollar index overseas, strong importers demand, continuous capital outflows coupled with widening current account deficit has put pressure on the rupee.
The dollar index, which was trading at a nearly three-year high, was down by 0.09 percent against a basket of six major currencies.
Whether the currency would find its stable level or will continue to slide further remains a tricky question. But till the currency settles itself, let’s have a look at how continuous depreciation of the Indian currency will affect the common man.
Importers/Exporters: Importers will strongly feel the pinch of falling rupee as they will be forced to pay more rupees on importing products. Conversely, a feeble rupee will bring delight to the exporters as goods exported abroad will fetch dollars which in return will translate into more rupees. Also, a weak rupee will make Indian produce more competitive in global markets which will be fruitful for India's exports.
Imported goods: Buying imported stuff will become a very costly affair. You will have to shell out extra on imported goods. For instance if you bought a product valued USD 1, you paid around Rs 54 (weeks ago) but you will now have to shell out close to Rs 61 for the same product.
Fuel price: A weak rupee will increase the burden of Oil Marketing Companies (OMCs) and this will surely be passed on to the consumers as the companies are allowed to do so following deregulation of petrol and partial deregulation of diesel. If the OMCs increase fuel prices, there will be a substantial increase in overall cost of transportation which will stoke up inflation.
RBI’s monetary policy: If the depreciation in rupee continues, it will further increase inflation. In such a situation RBI will have very less room to cut policy rates. No cut in policy rate will add to the borrower’s woes who are eagerly waiting to get rid of the high loan regime.
Students studying abroad: Students who are studying abroad will bear the brunt most owing to depreciating rupee. Expenses incurred towards the university/college fee as well as that of living will shoot up, thereby spelling a huge burden on the students.
Tourism: The depreciating rupee will surely be a dampener if you are planning your holiday abroad. Your travel charges as well as hotel charges will escalate drastically, let alone shopping and other miscellaneous spending activity.
Country’s fiscal health: A frail rupee will add fuel to the rising import bill of the country and thereby increasing its current account deficit (CAD). A widening CAD is bound to pose a threat to the growth of overall economy.