Rupee weakens further to fall below 80 against dollar. What does it mean?

by 5paisa Research Team Last Updated: Dec 13, 2022 - 11:54 am 22k Views

The Indian rupee is going through its worst crisis yet. On Tuesday, it sunk to its lowest yet, going below the psychologically crucial mark of 80 to the US dollar. 

The rupee went as low as 80.05 to the dollar, before it was helped back up by some intervention from the country’s central bank. The Reserve Bank of India pumped some US dollars into the currency markets to steady the currency slightly after it went down for the seventh consecutive trading session. 

Is the Indian rupee the only one that has been falling among Asian currencies?

Not really. Apart from the rupee, nearly all major currencies in Asia have been falling in the wake of the US federal reserve raising interest rates, which has made investors across the world risk averse. 

The rate hikes have forced US and European investors to shun riskier emerging markets and take their hot money back. 

But has the US dollar itself been falling?

Yes. The US dollar hovered just above a one-week low reached overnight versus major peers as markets reduced the odds of a percentage-point Federal Reserve rate hike this month.

Is the rupee likely to weaken further?

Traders say it is likely to weaken further, although they say how much it will fall, will depend on the RBI’s action. But traders say the rupee was being hurt by a severe dollar shortage and expectations that India's current and trade account deficits will continue to widen.

How does a falling rupee impact India?

While it does help export-oriented sectors like IT, it also widens the gap between what India pays for import versus what it pays for exports. 

In other words, a falling rupee widens India’s current account deficit, as the imported price of crude becomes that much costlier. India relies on imported crude for 80% of its energy needs, so this could be a major problem going ahead, especially if the international price of crude continues to remain high. 

In fact, the rupee itself depends on the price of crude. If they remain high, it will remain weak against the dollar. 

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