Reasons why Rupee value is struggling | Fusion - WeRIndia

Reasons why Rupee value is struggling

Reasons why Rupee value is struggling

The Indian rupee has had a rough time in 2018. This may not come as a surprise, since there are many factors going against the country’s currency, both domestic and global.

The rupee has weakened by three fourths of its main emerging market (EM) peers.

There are some of the factors that are driving down the value of the Indian rupee.

The tariffs enacted by the United States government have sparked a trade war, especially with China.

In November of 2018, the American midterm elections will take place, which are driving this trade war.

The currently-Republican-run government is determined to remain in power in both chambers of the United States Congress.

However, the trade war with China is causing capital flight. Since the Chinese Yuan is falling in value, this is decreasing the value of the Indian rupee in turn.

Due to Iran sanctions, oil prices are on the rise. This is bad news for India, since a great deal of the country’s oil is imported.

The situation could be worsened further if the government reduces excise duty on petroleum products.

The rising oil prices feed into consumer inflation, through both direct and indirect channels. All in all, the rising oil prices are decreasing the value of the Indian rupee.

The American economy is currently enjoying a strong economic momentum. The United States government is attempting to keep it that way through its fiscal policy.

Therefore, wage inflation has begun to rise in America. The Federal Reserve is raising rates and lowering reserves in the system. This is bad news for EM currencies, such as the Indian rupee.

Domestically, financial conditions are tightening. The Reserve Bank of India (RBI) has begun to hike rates. This is bad news for bond markets and domestic equity markets. It discourages inflows, and it can weaken the value of the rupee.

Image credit: Photo by Ishant Mishra on Unsplash (Free for commercial use)

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