{"id":42943,"date":"2024-10-14T07:13:31","date_gmt":"2024-10-14T01:43:31","guid":{"rendered":"https:\/\/vajiramandravi.com\/current-affairs\/?p=42943"},"modified":"2025-05-05T21:45:25","modified_gmt":"2025-05-05T16:15:25","slug":"understanding-the-fall-of-the-indian-rupee-to-84-against-the-us-dollar","status":"publish","type":"post","link":"https:\/\/vajiramandravi.com\/current-affairs\/understanding-the-fall-of-the-indian-rupee-to-84-against-the-us-dollar\/","title":{"rendered":"Understanding the Fall of the Indian Rupee to 84 Against the US Dollar"},"content":{"rendered":"<h2><strong>\u00a0What\u2019s in today\u2019s article?<\/strong><\/h2>\n<ul>\n<li><strong>Why in News?<\/strong><\/li>\n<li><strong>Falling rupee<\/strong><\/li>\n<li><strong>Outlook for the Rupee<\/strong><\/li>\n<\/ul>\n<h2><strong>Why in News?<\/strong><\/h2>\n<p>On October 11, 2024, the Indian rupee ended above the 84 per US dollar mark for the first time, closing at 84.07 after touching 84.10 during the day. A day before, the rupee had closed at 83.98.\u00a0<\/p>\n<p>The fall came amid outflows from foreign institutional investors, concerns over rising oil prices, and higher demand for the US dollar from foreign banks.<\/p>\n<h2><strong>Falling rupee<\/strong><\/h2>\n<ul>\n<li><strong>Meaning<\/strong>\n<ul>\n<li>When it is reported that the rupee has fallen to a low of 80 dollars, it basically means that one needs Rs 80 to buy a single dollar.<\/li>\n<li>This is important when buying not just American goods but also other goods and services (say crude oil).<\/li>\n<li>In a free-market economy, the exchange rate is decided by the supply and demand for rupees and dollars.\u00a0<\/li>\n<li>If, in India, demand for dollars is more in comparison to the demand for rupee, the exchange rate will fall or weaken for rupee and rise or strengthen for dollar.<\/li>\n<li>However, in India, the market does not fully determine the exchange rate. RBI occasionally intervenes in the foreign exchange (forex) market to ensure that the rupee&#8217;s price does not fluctuate too much.<\/li>\n<\/ul>\n<\/li>\n<li><strong>Reasons for falling rupee<\/strong>\n<ul>\n<li><strong>Rising Crude Oil Prices<\/strong>: Increased oil prices have raised concerns about India&#8217;s trade deficit and inflation.\n<ul>\n<li>The West Asia crisis has a bearing on the oil prices.<\/li>\n<\/ul>\n<\/li>\n<li><strong>FII Outflows<\/strong>: Foreign investors are moving funds to China, following China&#8217;s stimulus measures.\n<ul>\n<li>Foreign investors have been following a strategy of <i><strong>\u2018Sell India, Buy China\u2019<\/strong><\/i> after the Chinese authorities announced monetary and fiscal measures to stimulate the slowing economy.<\/li>\n<\/ul>\n<\/li>\n<li><strong>Increased Demand for the US Dollar<\/strong>: Foreign banks are demanding more US dollars, further pressuring the rupee.<\/li>\n<li><strong>Weak Domestic Markets<\/strong>: Local stock market performance also contributed to the rupee\u2019s decline.<\/li>\n<\/ul>\n<\/li>\n<li><strong>Impact<\/strong>\n<ul>\n<li>It could increase cost of imports, raise overseas education costs, make foreign loans costly for companies and has the potential to stoke inflation, which is already ruling at 7%.\u00a0<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<figure class=\"image image_resized\"><img decoding=\"async\" src=\"https:\/\/vajiram-prod.s3.ap-south-1.amazonaws.com\/Impact_of_falling_rupee_253cb8727a.webp\" alt=\"Impact of falling rupee.webp\" \/><\/figure>\n<ul>\n<li><strong>Impact on inflation management<\/strong>\n<ul>\n<li>The most crucial impact would be on inflation as the country imports nearly 80% of its crude oil needs.\u00a0<\/li>\n<li>This would mean that imports would become costlier and travel through the value chain to raise input costs.<\/li>\n<\/ul>\n<\/li>\n<li><strong>Impact on current account deficit<\/strong>\n<ul>\n<li>Since a large proportion of India\u2019s imports are dollar-denominated, these imports will get costlier.<\/li>\n<li>Costlier imports, in turn, will widen the trade deficit as well as the current account deficit, which, in turn, will put pressure on the exchange rate.<\/li>\n<\/ul>\n<\/li>\n<li><strong>Positive impact<\/strong>\n<ul>\n<li>One positive impact could be that remittances from overseas could become attractive.<\/li>\n<li>A fall in the rupee can also benefit India&#8217;s exporters &#8211; unless they import raw materials, which would become more expensive.<\/li>\n<\/ul>\n<\/li>\n<li><strong>Steps that could be taken to prevent the slide<\/strong>\n<ul>\n<li>Sell large amounts of dollars to support rupee (by increasing the supply of dollar)<\/li>\n<li>Raising interest rates to make Indian investment attractive<\/li>\n<li>Removing reserve restrictions on dollar deposits with banks<\/li>\n<li>Allowing traders to make settlements in rupee to reduce dollar dependence.<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<h2><strong>Outlook for the Rupee<\/strong><\/h2>\n<ul>\n<li>Analysts expect the rupee to remain volatile, driven by uncertainties in oil prices and fluctuations in the dollar index.\u00a0<\/li>\n<li>The rupee may face continued pressure from FPI selling and geopolitical uncertainty, particularly from tensions in the Middle East.<\/li>\n<\/ul>\n<hr \/>\n<h3><strong>Q.1. What caused the Indian rupee to fall to 84 per US dollar?<\/strong><\/h3>\n<p>The fall was triggered by rising crude oil prices, outflows of foreign investment, and increased demand for the US dollar by foreign banks.<\/p>\n<h3><strong>Q.2. How does a weak rupee impact the Indian economy?<\/strong><\/h3>\n<p>A weaker rupee increases the cost of imports, especially crude oil, leading to higher inflation and a widened trade deficit, while also benefiting exporters.<\/p>\n<p><strong>Source: <\/strong><a href=\"https:\/\/indianexpress.com\/article\/business\/rupee-hits-an-all-time-low-of-84-against-the-us-dollar-factors-leading-to-the-fall-9617735\/\" target=\"_blank\" rel=\"nofollow noopener\">Rupee hits an all-time low of 84 against the US dollar: factors leading to the fall and the outlook<\/a> | <a href=\"https:\/\/www.firstpost.com\/business\/explained-what-the-rupee-falling-to-low-of-80-against-us-dollar-means-for-you-10928541.html\" target=\"_blank\" rel=\"nofollow noopener\">First Post<\/a> | <a href=\"https:\/\/indianexpress.com\/article\/explained\/indian-rupee-us-dollar-exchange-rate-explained-8038186\/\" target=\"_blank\" rel=\"nofollow noopener\">Indian Express<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Discover the factors behind the Indian rupee&#8217;s historic fall to 84 per US dollar, including FII outflows, rising oil prices, and domestic market weakness, along with potential impacts on inflation and trade deficits.<\/p>\n","protected":false},"author":5,"featured_media":42944,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[18],"tags":[],"class_list":{"0":"post-42943","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-upsc-mains-current-affairs","8":"no-featured-image-padding"},"acf":[],"_links":{"self":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts\/42943","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/users\/5"}],"replies":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/comments?post=42943"}],"version-history":[{"count":0,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts\/42943\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/media\/42944"}],"wp:attachment":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/media?parent=42943"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/categories?post=42943"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/tags?post=42943"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}