Emerge a problem for rupee

Economic Update

Emerge a problem for rupee

By Sandeep Nagyaan · 11 Sep 2018


Emerge a problem for rupee

The Indian rupee has been sliding against the U.S. dollar in recent days as emerging markets come under pressure. That’s made the currency one of Asia’s worst performers, losing 12 percent this year.  The Reserve Bank’s stated policy is to reduce volatility, rather than target a specific level for the currency. Monday plunged to a new low of 72.67 against the US dollar losing 94 paise from the previous closing market. some experts said that beside strong demand of American currency, buying by importers, mainly oil refiners in views of surging crude oil price, and capital out flow, weighed on the domestic currency.

 Major causes responsible for slide rupee:-(1)  India’s currency- derivative markets, with many restrictions and limited liquidity, make hedging quite expensive, so these companies are now exposed. (2) Another pressure point is the price of oil, which quickly becomes a matter of unhappiness among the middle class. India imports about 80 percent of its petroleum needs (3)Taxes on fuel — almost 100 percent on gasoline and 60 percent to 70 percent on diesel.  This means that when the rupee depreciates, the exchange-rate pass through to fuel prices and, as a result, the rest of the economy, is high.

How can to support the currency:-(1)  intervene in foreign-exchange markets by selling dollars. RBI has more than $400 billion foreign currency in reserve.  it could raise interest rates, a move justified by the currency weakness, higher oil prices and the latest above-target inflation data. (2)Manufacture sector used more energy compared that services and other sectors. So we need to less use of energy such as: Petrol, diesel, gas and other. (3)Reduce the trade deficit by used the business and import, export policies.