Why rupee hit all-time low and what it means
NEW DELHI: The rupee on Thursday morning opened at an all-time of of 68.89 against the US Dollar, slipping a further 28 paise against the previous close of 68.61. This was after rupee closed at a 19-month low on Wednesday, posting the biggest single session fall, plunging 37 paise.
In morning trade, the currency breached the 69-mark.
WHAT MAKES A WEAK RUPEE
1) The slump in the currency has its roots in the concerns that higher crude oil prices. Oil prices in the global market inched up further with US crude futures rose $.23 to settle at $72.76 a barrel. Brent crude rose $1.31 to settle at $77.62 a barrel.
2) The currency market was nervous after RBI painted a gloomy picture of the banking sector in its bi-annual financial stability report.
3) Currency traders are also worried about the future of global trade against the grim backdrop of an escalating trade rhetoric between the US and China.
4) A massive selloff in domestic equities further added pressure fearing heavy capital outflows.
HOW A WEAK RUPEE AFFECTS YOU
1) While a weakening rupee will mean Indian exporters are left smiling, importers however, will feel the heat.. According to latest government data, India’s trade deficit stood at $14.6 billion in May, 5.6 per cent higher than a year ago. A falling rupee will only widen this gap.
) As imports, especially oil imports get costlier, it could translate into higher fuel costs, which will raise, or at least keep the pressure on the overall cost of economic activity. An inflationary pressure may add to Reserve Bank of India’s (RBI) woes and result in a further hike in key interest rates.
3) The erosion in rupee’s value has adversely hit the bond market too. The 10-year benchmark bond yield shot-up to 7.87 per cent from 7.83 per cent on Wednesday.
4) For those travelling abroad as tourists or Indians studying abroad, fall in rupee’s value would mean a higher cost of living.
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