Indian Rupee (INR) beaten down by the U.S Dollar

The Rupee costs fewer Dollars now. You get 2 Rupees more than what you could in October this year. A more precise history can be found on Yahoo finance. I’m not entirely sure why. Indian exports are on the up (although not as much as one would like). One article claims that this maybe directly attributed to rising U.S interest rates implying that the Dollar would become dearer as lending becomes harder. Anyhow, I doubt if the interest rates in the U.S will stop rising altogether. I am convinced they won’t fall in the near future.

Here is an article written way back in October warning of an imminent fall in the Rupee. Some of the significant points from that article:

  • India’s merchandise trade deficit is growing.
  • The current deficit will also tend to grow despite growth in Software exports and remittances from Abroad.
  • The economy has been growing at a better than expected 8.1%.
  • Rising energy prices will also negatively impact the Rupee.
  • The Reserve Bank of India (RBI) meets on October 25th (a date in the past), and will possibly raise interest rates.

Some digging around on news.google.com reveals that the RBI did in fact make a statement today on the Rupee’s continued Fall. To summarise, the RBI

  • has no preset target on the value of the Rupee
  • are happy if the value of the Rupee reflects the market fundamentals.
  • won’t step in to correct the fall.

At this point it isn’t too difficult to conclude that the Rupee is going to continue to move in a downward direction as the U.S will attempt to fortify their own economy.

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2 Comments on “Indian Rupee (INR) beaten down by the U.S Dollar”

  1. samrat says:

    The indian current deficit is not a big concern, it is a natural stage of growth in a developing country. since a curr acct deficit in most cases implies capital acct surplus unless the govt is using up the forex reserves. A Cap Acct surplus means that foreigners are investing in the indian economy, which is imperative for growth as india is a capital deficient state.

    since US has its own huge Trade deficit and increasing indebtedness,inflation to consider, thats why its decided to shore up the dollar and tighen its monetary policy.

    but do not believe that US curr will strengthen against most of the world’s currencies.
    becoz the $ is overvalued. it is only so strong coz it is the primary reserve currency in the world and people prefer to keep $ denominated deposits all over the world. With the existing US macroeconomic scenario, $ would have been quite weaker compared to other currencies if it was not the defacto world currency.

  2. Santosh says:

    Samrat, good of you to stop by and leave your comments.

    Your right, the RBI shouldn’t have to be worried, the Indian forex reserves have stayed stable – haven’t they? I’m not sure when was the last time I checked, probably a while ago. The trade deficit has only widened a bit this quarter. You probably already have a handle on that news.

    I really wanted to say that we are going to see the Rupee weaken for the near term.