What are the Main Reasons Behind the Fall of the Indian Rupee?
The value of a currency is driven by many factors and thus it’s and rises and can’t depend on any single factor. The below reasons are mainly responsible for the fall in the value of the Indian rupee.
- One of the most important factors that contributed heavily to the fall of the Indian rupee is the fluctuation in global oil prices. As India is not a massive oil-producing country and imports more than 80% of oil from other nations to meet its fuel demand. So whenever the oil prices observe a price hike the spending on total oil imports of India increases against its export. In the last 3-4 months crude oil has observed a huge price hike due to the Russia-Ukraine war. The per barrel price of crude is constantly increasing from USD 110 per barrel to USD 122 per barrel in July, thus significantly affecting the value of the Indian Rupee.
- A heavy outflow in foreign funds from the domestic market is also an important reason for the depreciation of the Indian Rupee. From the beginning of Fiscal 2022-23 till now the foreign investors sold shares worth more than 28.4 billion US dollars. This figure for foreign fund outflow is even more than that of 11.8 billion UD dollars during the Global Financial Crisis of 2008.
- Other reasons for the decrease in the value of the Indian rupee are unemployment, economic challenges, and higher inflation rates.
From the beginning of the financial year 2022-23 till today, the value Indian Rupee has observed a decline of more than 6%.
Causes Of Rupee Falling Against US Dollar And Its Effect
Whenever the value of a currency falls, it badly impacts that nation’s economy and results in a higher rate of inflation. The value of any currency falls or rises based on the demand for one currency over another. For example, if there is a higher demand for the US dollar than the Indian Rupee then the value of the Indian rupee falls against US Dollar and vice-versa. The demand for a currency is driven by the nation’s total imports and exports. Like if India imports more than it export it raises the demand for the US dollar oversupply thus resulting in a fall in the value of the Indian rupee against the US Dollar.