Indian rupee continued to fall hitting 80 today
against the US dollar, taking its year-to-date fall to about 7 percent,
according to Indian media.
The currency hit a low of 80.0175 in early trade compared to the previous
close of 79.9775, Indian media reported quoting Bloomberg.
At the interbank forex market on Monday, the Indian currency opened at 79.76
against the greenback but later lost ground to touch the key low mark of
80.00 against the US currency, said a PTI report.
Indian media last week reported that some banks were already asking 80 rupees
for a dollar in currency exchange transactions, including the State Bank of
India.
According to the reports, the rupee’s exchange rate in comparison with the US
dollar is essentially the number of rupees one needs to buy a single US
dollar.
When the rupee depreciates, buying goods from outside India becomes costlier.
There is a flip side too. By the same logic, if one is trying to sell
(export) goods and services to the rest of the world, especially the US, a
falling rupee makes India’s products more competitive as depreciation makes
it cheaper for foreigners to buy Indian products.
The Reserve Bank of India (RBI) is taking a number of measures to stabilise
the value of the rupee. It has been selling US dollars in the open markets,
out of its forex reserves. This increases the supply of USD in the markets,
bringing down their value.
However, it also leads to the depletion of forex reserves. Since February
2022, India’s forex reserves have depleted by Rs 1.0 trillion.
RBI has also proposed the rupee settlement mechanism. Under this, foreign
companies can make foreign payments in rupees, unlike the usual US dollars.
This is expected to reduce the need for US dollars for foreign trade,
stabilising its value in India.
