InvestorQ : Why is the Indian rupee becoming weaker on a daily basis?
Mahima Roy made post

Why is the Indian rupee becoming weaker on a daily basis?

Aditi Sharma answered.
3 years ago

You are right that in the last 20 days of August the rupee has weakened more than 5% had has moved from Rs.68/$ to Rs.71.5/$. This weakening of the rupee has been led by a number of factors.

· Worries of global growth in the light of the trade war has been one of the key reasons for the weakening of the rupee. It is expected to hit India’s exports and widen the trade deficit.

· Oil prices did fall to as low as $56/bbl but has recovered since on the back of geopolitical strife in the Middle East and OPEC cutting supply further. Since India relies on imports for 80% of its oil needs, this is again likely to pressure the rupee.

· Indian companies are likely to make a rush for forward covers in the next few weeks as the dollar has got into strengthening mode. This rush for cover from banks and importers as well as from borrowers is keeping the rupee under pressure.

· In the last few weeks, the Chinese Yuan has played spoilsport. Rupee has weakened since the Yuan crossed the 7/$ mark and has remained weak ever since. Weak Yuan forces the rupee to weaken to stay competitive.

· Fears that the government will have to announce a fiscal boost package for the economy is raising concerns that the government could see the fiscal deficit worsen. That is keeping up the pressure on the rupee on external ratings concerns.

The rupee is already at a 6-month low and this pressure has continued since the beginning of August this year.