Why Rupees are getting weaker these days? Welfin Best financial advisor in Kolkata

In 2022, the Indian Rupee has lost 3.5 percent of its value versus the US dollar. The rupee has lost nearly 1.2 percent of its value in the last month alone. The Rupee was worth Rs. 64.60 versus the dollar five years ago, year to date in 2017. The continuous worldwide geopolitical tensions, the rise in oil costs, a lack of food imports, and the resulting rise in inflation are the causes of this rapid drop. While investing in assets or spending in Indian currency in a foreign country may become more expensive, there are opportunities for an NRI to profit from. If you are an NRI investing in India, the decrease in the value of the Indian currency means that every dollar you repatriate home is worth much more. NRI remittances from countries like the United States, the United Arab Emirates, the United Kingdom, and a few Asian countries have historically increased whereas the Indian Rupees are getting weaker. Investment in India has become much more profitable due to the rising value of the US dollar. Despite the fact that foreign remittances are on the rise, NRIs should pay special attention to the channels through which they execute their investments in order to maximize their financial rewards.

Geopolitical dangers

Rupees are getting weaker because the Uncertain global conditions have sparked a risk appetite, resulting in the rupee’s depreciation. In reality, the rupee has been under tremendous pressure since the geopolitical environment has been disrupted by Russia’s invasion of Ukraine.

Sanctions against Russia have been imposed by most major western economies, causing global market instability.

Fears of global inflation were heightened as a result of the crisis, driving up the cost of critical goods around the world.

India, the world’s third-largest oil importer, saw a considerable increase in its import bill as crude oil prices soared to record highs as a result of supply shortages.

Bond yields are increasing.

On Monday, India’s 10-year benchmark bond reached a high of Rs 93.69, yielding 7.46 percent after earlier touching a high of 7.49 percent.

The government has now requested that the RBI either purchase back the bonds or perform an open market operation to bring down rates, which have reached their highest level since 2019.

Furthermore, in March, the US Federal Reserve’s hawkish stance on inflation triggered a sell-off in their treasuries.

On Monday, the 10-year yield hit 3.302 percent, down a few basis points from a near-decade high in 2018. This is yet another reason why rupees are getting weaker these days.

Fears about inflation

Inflationary pressures have been worsened by Russia’s invasion of Ukraine, as well as ongoing Covid-19 blockades in China led to the rupees getting weaker these days.

The Federal Reserve’s policy committee boosted the benchmark rate by half a percentage point last week, the largest rise since 2000, and warned further substantial hikes were anticipated.

Due to global supply limitations, demand outpaced supply. This sent prices in the world’s largest economy rising, particularly in homes and automobiles, with inflation rates not seen since the 1980s.

The Reserve Bank of India hiked policy rates by 40 basis points to 4.40 percent on the same day that the US Federal Reserve lifted interest rates.

Flood inflation, which constitutes roughly half of the CPI basket, hit a multi-month high in March and is projected to stay strong as global vegetable and cooking oil costs rise.

The dollar rose to its highest level in two decades, spurred by higher treasury yields, on expectations of more rate hikes by the US Federal Reserve.

Reserves of foreign currency are insufficient.

For the first time in almost a year, India’s foreign exchange reserves have dropped below $600 billion.

According to the Reserve Bank of India’s weekly statistical supplement for the week ending April 29, the country’s foreign reserves fell by 2.965 billion dollars to $597.728 billion.

India’s foreign reserves have now dropped for the eighth week in a row.

For the first time in almost a year, the country’s foreign reserves have dipped below $600 billion. The last time India’s foreign exchange reserves fell below $600 billion was in the week ending May 28, 2021.

The largest component of India’s FX reserves, foreign currency assets, fell by $1.11 billion to $532.823 billion during the week under review, according to RBI data.

 

The withdrawal of funds by FIIs continues.

Since the beginning of the year, foreign investors have avoided selling domestic equities markers. Foreign investors’ significant selling usually signals the rupee’s weakness against the dollar.

FIIs have pulled out over 20,000 crores from Indian stock markets in just six trade days this month.

FIIs have taken approximately Rs 2.92 lakh crore out of the markets since October of last year. Foreign investors have been liquidating Indian stocks for the eighth month in a row.

In comparison to other currencies, the rupee is

Rising US dollar pressure has put the most pressure on the rupee in the recent 20 trade sessions.

The native currency improved little in terms of the UK, Euro, and Japanese Yen.

In recent sessions, the pound sterling has weakened from near Rs 100 to Rs 95.5, while the euro and the yen have also weakened to Rs 81.7 and Rs 59.32, respectively.

The US dollar index, which measures the currency against six major currencies, broke over the 104 mark on Monday and was trading at 20-year highs of 104.07. The index had finished at 103.79 the previous session, up 8% so far in 2022.

The dollar index increased by 0.203 percent to 103.900, while the euro fell by 0.24 percent to $1.053.

Since the rupee is getting weaker this year in March, days after Russia invaded Ukraine, India’s central bank has protected the rupee by burning up its foreign exchange reserves.

The battle on the outskirts of Europe has dragged on global risk assets, raising concerns about a further push to already high inflation and the impact of subsequent central bank action on economic growth.

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