That the Indian rupee is falling is something headlines would have already told you this morning. But if you’re wondering why the rupee has hit an all-time low against the dollar, you’re in the right place. Thanks to the volatility in market affecting indices and individual stocks, coupled with global and domestic cues, the Indian currency has its back against the wall. Currently, the Indian rupee stands at ₹73.76 per dollar. A year ago, on October 3, 2017, one US dollar would get you ₹65.45. Whether you actively follow the markets or not, no one can remain untouched by the rupee’s fall of over 11.2 per cent in a year. A decline of such a measure is bound to affect your life directly or indirectly. So here’s a lowdown of why the rupee is falling and how it impacts you.
One of the biggest reasons the rupee is falling at this rate is the high crude oil prices, which are currently at a record $85 (₹6,270) per barrel. This is the first time in four years that crude oil prices have hit the $85 mark.
Apart from the situation regarding the crude oil prices, other factors contributing to the weakening rupee include a rapidly increasing current account deficit (CAD) which has become a thorn in the side for the Indian economy. A rise in CAD means that more quantity of the local currency is needed for payment of higher imports, which eventually leads to the depreciation of the Indian rupee. Even overseas investors were quick to pull out a massive $3 billion dollars (₹21,000 crore) from the capital markets last month, making it the deepest outflow in over four months. This eventually leads to further widening of the CAD and the fall of the Indian rupee.
A falling rupee can also lead to interest rate hikes by the RBI, which has already raised interest rates twice in 2018. A higher interest rate means higher EMIs which would make loans more expensive.