Mumbai: , 107 paise lower than its previous close of 57.07 on Friday. The sharp fall has raised the spectre of high inflation and further slowdown in investments by businesses as all imports get costlier and businessmen face huge uncertainty.
Besides bringing about a general increase in prices, a weak rupee also directly hurts those who are planning to travel or study abroad. The fall in the rupee will make it difficult for the RBI to bring down inflation and stimulate growth as the depreciation increases fuel price. It also makes it difficult for RBI to cut interest rates as this would make it cheaper for traders to speculate on the dollar firming up further.
BAD NEWS FOR...
• Foreign travel, education, imports and foreign debt service for cos
• Cars and home appliances with imported components
GOOD NEWS FOR...
• Remittances back home
• Exporters Gradual slide in Re to boost exports, say bankers
Mumbai: Monday's fall in the rupee was prompted by strong gains in the dollar in the international market, coupled with uncertainty in equity markets and a sell-off of bonds by foreign investors.
The previous low seen by the domestic currency was on June 22, 2012 when it touched 57.16 against the dollar. Since then the rupee recovered to touch a high of 51.88 in October before weakening again. The rupee has depreciated over 7% against the dollar during the current fiscal making it the worst performing currency in Asia.
According to Madan Sabnavis, chief economist with rating agency Care, the fundamental driving the rupee movement is ultimately the change in the country's foreign exchange reserves as decline in reserves would result in depreciation. Foreign currency assets, after increasing in the months of March and April, have declined to $258.50 billion in May.
Bankers say that while a gradually weakening rupee would have a self correcting effect by addressing the factors that led to the fall, the volatility could badly hurt the rupee. "A gradual depreciation would reduce import demand and promote exports. It would also make Indian assets attractive for foreign investors. But wild swings in the rupee hurt everybody. Exporters too will lose because of mark to market losses on their hedging positions on the rupee" said a trader with a multinational bank.
"The dollar has been strengthening against currencies of a number of emerging market economies. This is mainly owing to the expectation of the Federal Reserve discontinuing the quantitative easing programme sooner, resulting in fewer funds flowing down to the emerging markets. Also, the European Central Bank and the Bank of England maintained key interest rates at the same level. This would also provide for strengthening of the dollar," said Sabnavis.
Besides bringing about a general increase in prices, a weak rupee also directly hurts those who are planning to travel or study abroad. The fall in the rupee will make it difficult for the RBI to bring down inflation and stimulate growth as the depreciation increases fuel price. It also makes it difficult for RBI to cut interest rates as this would make it cheaper for traders to speculate on the dollar firming up further.
BAD NEWS FOR...
• Foreign travel, education, imports and foreign debt service for cos
• Cars and home appliances with imported components
GOOD NEWS FOR...
• Remittances back home
• Exporters Gradual slide in Re to boost exports, say bankers
Mumbai: Monday's fall in the rupee was prompted by strong gains in the dollar in the international market, coupled with uncertainty in equity markets and a sell-off of bonds by foreign investors.
The previous low seen by the domestic currency was on June 22, 2012 when it touched 57.16 against the dollar. Since then the rupee recovered to touch a high of 51.88 in October before weakening again. The rupee has depreciated over 7% against the dollar during the current fiscal making it the worst performing currency in Asia.
According to Madan Sabnavis, chief economist with rating agency Care, the fundamental driving the rupee movement is ultimately the change in the country's foreign exchange reserves as decline in reserves would result in depreciation. Foreign currency assets, after increasing in the months of March and April, have declined to $258.50 billion in May.
Bankers say that while a gradually weakening rupee would have a self correcting effect by addressing the factors that led to the fall, the volatility could badly hurt the rupee. "A gradual depreciation would reduce import demand and promote exports. It would also make Indian assets attractive for foreign investors. But wild swings in the rupee hurt everybody. Exporters too will lose because of mark to market losses on their hedging positions on the rupee" said a trader with a multinational bank.
"The dollar has been strengthening against currencies of a number of emerging market economies. This is mainly owing to the expectation of the Federal Reserve discontinuing the quantitative easing programme sooner, resulting in fewer funds flowing down to the emerging markets. Also, the European Central Bank and the Bank of England maintained key interest rates at the same level. This would also provide for strengthening of the dollar," said Sabnavis.
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