Depreciation of the Indian Rupee and Its
Key Causes
¨
The Indian Rupee (INR)
has weakened below 94 against the US Dollar (USD).
¨ Rising crude oil prices
due to tensions in West Asia have increased pressure on the rupee.
¨
Higher import costs have
further worsened the situation.
¨ Depreciation refers to a
fall in currency value due to market forces (demand and supply).
¨ Devaluation refers to a
deliberate reduction in currency value by the government/central bank.
¨
A widening current
account deficit is a major cause of rupee weakness.
¨
Crude oil prices crossing
$100/barrel have increased the deficit.
¨
Geopolitical tensions
(West Asia, Strait of Hormuz) have kept energy prices high.
¨
This has increased
inflationary pressures.
¨
Continuous outflow of
Foreign Portfolio Investment (FPI).
¨
Investors shifting
towards safe assets like the US Dollar.
¨
Decline in stock markets
(Sensex, Nifty).
¨
India follows a managed
floating exchange rate system.
¨
The rupee’s value is
largely determined by market forces.
¨
RBI intervenes
occasionally to control volatility.
