causes for rupee depreciation

8/22/2019 causes for Rupee depreciation

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What causes to Rupee

Depreciation.....?


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Introduction

What is currency?

- medium of exchange for goods and services

- accepted form of money [coins and paper notes]

- issued by a government and circulated within an economy- each country has its own currency

Major currencies in Glob


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Introduction

cont...

How define the value of currency?

- When demand > supply, currency becomes more valuable

and vice versa


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Reasons For rupee Depreciation


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Reasons For rupee Depreciation

1. Political paralysis:-

- unable to transact any meaningful business

- Coalition politics make things difficult for the government to

push the much-needed reforms in many sectors- This is creating panic among overseas investors who want to

invest in India


6/13

Cont...

2. Volatile Stock Market:-

- Unpredictable and vigorous changes

in price within the stock market.

- It is necessary for some movementwithin the market in order to sell commodities,

- however a volatile market represents the

most risk to investors


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Cont...

3. Current account deficit:-

- A current account deficit occurs when a

countrys total import exceeds the total

exports.- not good for the country

- Indias current account deficit now

is more than the projected level


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Cont...

4. High gold prices:-

- Very high prices for gold have created panic among investors

- The fear of bubble bursting in gold has resulted in investors

viewing dollar as a safe currency


9/13

Cont...

5. Price of crude:-

- tremendous stress on the Indian Rupee

- Globally, the price of oil is quoted in dollars

- domestic demand for oil increases or the price of oil increasesin the international market


10/13

Cont...

6. Interest rate difference:-

- Higher real interest rates generally attract foreign investment

- slowdown in growth there is increasing pressure on RBI to

decrease the policy rates- foreign investors tend to stay away from investing


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Cont...

7. Inflation causing rupee depreciation:-

- decrease the purchasing power

- The inflation rate in India was recorded at 4.86% in June of

2013.


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Cont...

8. Fundamental law of economics:-

- demand for the dollar in India > supply, the dollar appreciate

and rupee depreciates.

- created by importers- requiring more dollars to pay for their

imports

- Foreign Institutional Investors- withdrawing their investments

and taking the dollars outside India


13/13

The rope that can pull INR out

Measures By RBI:

- Using Forex Reserves

- Raising Interest Rates

- Make Investments Attractive- Easing Capital Controls

Measures by Government: FDI

causes for rupee depreciation

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