Implications of Falling Rupee

The Rupee was on its lowest point in 2 years after September 2009. The sustained fall is not only bad news for importers but is also fuelling inflation, pushing up prices of fuel and other commodities. The Falling Rupee is also negative factor for foreign institutional investors by reducing their effective returns. Re fall adds to policymakers’ woes. There would be steep depreciation and it would make RBI’s fight against high inflation tougher. Indian Rupee has seen the highest value erosion over the last 12 months. So far in 2011, it is the worst performer among 10 key Asian currencies.

Who are gainers?

• Exporters typically rejoice when the local currency depreciates, however, most of them have been caught off guard (in hedges / options etc.) because they did not expect the rupee to depreciate close to 5% in a matter of a month.
• The gainers are Goods exporters, software companies etc. which can now earn more Rupees for the same amount of dollars.
• The Overseas Workers are also gainers as their families would get more rupees for every dollar they remit.

Who are Losers?

• The people who travel abroad will have to shell out more rupees for same dollars.
• Consumers of the imported goods , because the prices will rise due to depreciating rupee.
• Oil Import will get more expnesive and this will put more pressure on inflation.
• The Foreign Institutional Investors will see a fall of returns and may alter investment plans.

Month: Current Affairs - November, 2011