Rupee can soon fall to an all-time low
The rupee’s value in foreign markets has been declining. On May 23rd, the rupee closed at an 18-month low of 68.42 against the US dollar. On May 24th, it did edge higher to be 68.34 against the US dollar. However, the rupee is not far from its all-time low of 68.87 per US dollar.
This all-time low was recorded in November of 2016. People are greatly concerned about the macroeconomic conditions of the rupee. It is down over 6% against the US dollar so far this year.
Additionally, the Forex advisory firm IFA Global has said that the possibility of the rupee heading towards 70 per US dollar is increasing. These are some of the reasons why the rupee is currently depreciating against the US dollar.
Recently, the prices of crude oil have been rising. Global crude oil prices recently breached the $80 mark. Crude oil prices have gone up by 50% in the last 13 months alone. Since India imports over 80% of its crude oil requirement, these rising prices are putting pressure on the rupee.
Petrol and diesel prices in India are determined by the market. However, the government still provides a subsidy for kerosene and cooking gas. For every $10 per barrel rise in the price, India’s fiscal balance will be impacted by 0.1%. India’s current account balance will also be impacted by 0.4% of GDP. Also, for every $10 per barrel rise in the price, domestic retail inflation could increase from 0.6% to 0.7%.
The rupee has also been hurt by the dollar’s surging appreciation against other major currencies. The yield on the US 10-year Treasury notes recently hit the 3% threshold. This happened due to people’s expectations of faster Federal Reserve rate hikes and optimism about US economic growth. Usually, higher US rates boost the dollar.
Image by Free stock photos from www.rupixen.com from Pixabay (Free for commercial use)
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Image Reference: https://pixabay.com/photos/rupee-indian-india-money-bank-note-4395464/
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