The decline in the Indian rupee this year has been attributed to the higher crude oil prices, the tightening policy of the US Federal Reserve, and the overall strength of the US dollar. Added to this the global uncertainty due to the geopolitical crisis caused by the war between Russia and Ukraine caused the weakening of the dollar.
The US Federal Reserve (Fed) raised interest rates by 75 basis points at its last meeting and said it would raise interest rates further by 75 basis points in November and 50 basis points in December.
Stocks plunged, Asian currencies fell, and markets went risk-off following the US Federal Reserve's announcement on Sept. 21.
Yields on dollar-denominated investments rose relative to emerging markets such as India. There is speculation that a more aggressive rate hike by the US Federal Reserve could take place, which could put further pressure on India's currency.
The Indian Rupee's value against the US Dollar works based on supply and demand. As the demand for the US dollar increases, the Indian Rupee depreciates. When a country imports more than it exports, demand for the dollar exceeds supply, causing domestic currencies such as the Indian rupee for India to depreciate against the dollar.
Supply-demand imbalances and geopolitical tensions between Russia and Ukraine led to a sharp rise in oil prices in February 2022. India’s crude basket price fell 43.8% from April 2021 to February 2022.
Foreign institutional investors (FIIs) have also sold $28.4 billion worth of equities so far this year, surpassing the $11.8 billion sold during the global financial crisis in 2008, because of which more foreign capital outflow from the domestic market The rupee has fallen 5.9% against the dollar so far this year.
The outflow of money from India will affect the rupee-dollar exchange rate and depreciate the rupee. Such a weakening would put significant pressure on the already high import prices of oil and commodities, paving the way for import inflation and higher production costs, along with higher retail inflation.
The dollar index, which tracks currencies against a basket of major currencies, is up more than 9% this year, reaching its highest level in 20 years.
The market fell for the second week in a row as the depreciation of the rupee against the dollar put pressure on the domestic market to reverse two months of positive inflows. Rate hikes by the US Federal Reserve and tightening of monetary policy by central banks around the world signaled a selloff among investors. The market started the week subdued, led by weak global markets.
Weakness in global markets finally pulled the index down over the weekend. Nifty posted his second straight day of positive closings, and his benchmark index corrected for his second week in a row, with sessions just above 17300, down 1.16% from the previous week's close.
RBI is responsible for maintaining the stability of the rupee. Whenever the rupee falls significantly, the RBI sells dollars from the forex pool to enter the market. The central bank sold $19.05 billion in the spot market in July, according to RBI data.
Another reason the rupee may come under pressure is that RBI intervention may become less aggressive, analysts say. This could help the rupee catch up with other emerging economies and protect rapidly depleting foreign exchange reserves, experts said.
The September 28-30 RBI Monetary Policy Committee meeting will be closely watched by stakeholders as the market expects repo rates to rise by 50 basis points (bps). FX reserves, down 14% from their peak, also keep the market on edge.
Swastika Investmart Ltd. Group : Registered with
SEBI Reg. No. : NSE/BSE/MSEI/MCX/NCDEX: INZ000192732
Merchant Banking : INM000012102
Investment Adviser: INA000009843
CDSL/NSDL : IN-DP-115-2015
RBI Reg. No. : B-03-00174
IRDA Reg. No. : 713
NCDEX : 00844
Online Dispute Resolution : ODR
Issued in the interest of investors: Prevent Unauthorised transactions in your trading and Demat account. Update your mobile numbers/email IDs with Swastika Investmart Ltd.. Receive alerts and information of all debit and other important transactions in your trading and Demat account directly from Exchange/Depository on your mobile/email at the end of the day. KYC is a onetime exercise while dealing in securities markets. Once KYC is done through a SEBI registered intermediary (broker, DP, Mutual Fund etc.), you need not undergo the same process again when you approach another intermediary. For any grievances or queries related to Swastika Investmart Ltd., please drop an email at compliance@swastika.co.in. To see the investor charter : NSDL- https://nsdl.co.in/publications/investor_charter.php, CDSL- https://www.cdslindia.com/Investors/InvestorCharter.html. You can also register your complaint with NSE - www. nse-investorhelpline.com/NICE PLUS, BSE - is@bseindia.com, MCX - grievance@mcxindia.com, NCDEX - ig@ncdex.com, SEBI - scores.gov.in/scores/Welcome.html. Benefits of SEBI SCORES - effective communication, speedy redressal of the grievances.“Attention Investors
.......... Issued in the interest of Investors"
Note: Standard warning- “Investment in securities market are subject to market risks, read all the related documents carefully before investing"
RISK DISCLOSURES ON DERIVATIVES.
Source: SEBI study dated January 25, 2023 on “Analysis of Profit and Loss of Individual Traders dealing in equity Futures and Options (F&O) Segment”, wherein Aggregate Level findings are based on annual Profit/Loss incurred by individual traders in equity F&O during FY 2021-22.
Free market recommendation on our official telegram channel
Just Select & Click as per your requirement :-
Trust Our Expert Picks
for Your Investments!