Hey guys, hope you have been constantly visiting my posts to have the better idea of whats going in market and plan finances accordingly. You might have wondered that on 20th July 2018, the rupee hit a low of 69.13 against the dollar.
What could be the reasons for it? Let us discuss what factors have led to the depreciation in the rupee value in the international market:-
1)Monetary policy tightening
Monetary policy tightening by the US Federal Reserve has resulted in the dollar strengthening. The Fed seems keen to move towards a neutral rate sooner rather than later to prevent excesses from building up in financial markets. On account of rising short-term rates in the US, foreign portfolio investors (FPIs) have deserted domestic bond markets and have been net sellers for six straight months.
2)Elevated crude prices
Elevated crude prices have been responsible for India’s worsening current account balance. Exports have not picked up in line with global growth due to Goods & Service Tax-induced disruptions.
3) Yuan Effects
The most recent leg of the rupee depreciation versus the dollar has been on account of weakness in the yuan. The Chinese central bank has allowed the yuan to depreciate to counter the effect of tariffs imposed by the US.
4)Rates have been hiked by RBI
Higher government spending, coupled with consistent undershooting of monthly GST collections, poses a risk of a fiscal slippage which may not be viewed favorably by investors, especially FPIs.
5)Political uncertainty
Political uncertainty ahead of the 2019 polls would also weigh on investors looking to infuse fresh capital into India. Also, the Punjab National Bank scam had also contributed to weakness in the rupee.