Rupee Crashes Below 96 Against Dollar: How This Shock Affects Indians

Key Takeaways

• The Indian rupee touched an all-time low of 96.14 against the US dollar on Friday before settling at 95.81. The main reason is largely due to the rise in crude oil prices and the West Asian geopolitical situation.
   
• The rupee is down nearly 6% year to date. Prior to this, the last major cause of the rupee's weakness occurred when it fell below the 94-per-dollar level earlier this year.
   

The rupee is at its all-time low level of under 96 against the US dollar due to the collapse in value. The reasons behind the crash include the increase in the cost of crude oil, the widening of the trade deficit, and capital outflow.

The Brent crude futures witnessed an increase of over 3% to touch above $109 on Friday. The impact of a price increase in crude oil will directly affect the imports of crude oil for India.

How will this affect you?

Here is how a weak rupee might affect the lives of common Indians:

As per news reports, foreign institutional investors (FIIs) have been selling stocks in India. This makes the rupee weaker. Besides, it is expensive for Indian firms to repay their foreign borrowings with a weakening currency.

On the brighter side, Indian exporters such as IT, pharmaceutical, and textile companies get to benefit from this trend. They make their revenue in dollars, which are converted to rupees for domestic purposes. A weaker rupee ensures higher profits for them in terms of the domestic currency.

What Market Experts say and Factors that could stabilise the Rupee?

Dilip Parmar, Sr. Research Analyst at HDFC Securities, elaborated on the present state of affairs. 

He stated, “Indian rupee tumbled to new lows as the country reported a trade deficit higher than the expectations. Global crude prices and the USD index gained after the US rejected Iran’s 14-point plan for peace, causing geopolitical tensions to escalate. Weak capital inflows and elevated energy prices will keep pressure on the currency in the near term.”

Anuj Choudhary, Research Analyst at Mirae Asset Sharekhan, pointed out measures that could stabilise the rupee. 

He said, “Demand for the US dollar from India and foreign institutional investors’ outflows may continue to weigh on the rupee, but RBI intervention and a rise in import duties on gold and silver could offer support.”

According to Khoon Goh, Head of Asia Research at ANZ, “The initial effects of an escalating conflict included volatility and depreciation in asset values. In the longer-term, the risk of prolonged conflict would manifest through higher inflation, economic growth, and balance of payments issues, particularly for large net energy importers.”

Here are the steps the Reserve Bank of India (RBI) could take to strengthen the rupee:

• Active intervention from the RBI in the forex market
• Increase in import duty on gold and silver, thereby reducing demand for the dollar
• Reduction in tensions in West Asia and a fall in crude oil prices

These measures could help reduce pressure on the rupee and improve stability in India’s currency market over the coming months.

Conclusion

India saw a fresh all-time low of the rupee below the 96 per dollar level. The move indicates the global unrest and the sensitivity of the rupee to oil prices. Expert views suggest continued near-term rupee weakness. In the future, it would be wise to monitor the RBI’s reaction to the recent change in crude oil prices.

FAQs 

1. Why did the Indian Rupee hit an all-time low against the US Dollar?

It is primarily due to the rise in the price of crude oil and the uncertainties generated by the geopolitical tensions in West Asia. Foreign investors withdrew their money from India, which causes demand for the US dollar to increase.

2. Is a record low rupee good or bad for the Indian economy?

It is positive as well as negative. It will make imports such as oil, gadgets, and foreign trips expensive. On the other hand, the Indian exporters who deal in Information Technology and Pharmaceuticals can gain from it since their earnings will be in US dollars.