Loading…
The Indian Rupee depreciated to an unprecedented low of 93.94 against the US Dollar.
The currency experienced a significant fall of 41 paise in a single trading session.
Major contributing factors included sustained withdrawal of funds by foreign investors.
A downturn in the domestic equity markets also played a role in the Rupee's weakening.
Rupee depreciation means that the Indian Rupee loses value relative to a foreign currency, typically the US Dollar. This implies that more rupees are now required to buy one dollar. Foreign fund outflows occur when foreign institutional investors (FIIs) or foreign portfolio investors (FPIs) sell their investments in a country's financial markets (like stocks or bonds) and convert the proceeds back into their home currency, usually USD, to repatriate them. This increases the demand for the foreign currency (USD) and reduces the demand for the local currency (INR), leading to its depreciation. A crash in domestic equity markets often triggers such outflows as investors seek safer havens or better returns elsewhere.
Simple Analogy: Imagine a fruit seller who usually sells apples for ₹10 each. If suddenly, fewer people want apples, or many people want to exchange their apples for oranges, the seller might have to lower the price of apples to sell them. Similarly, if many foreign investors want to 'sell' their Indian Rupees (by selling Indian assets) to 'buy' US Dollars, the 'price' of the Rupee (its exchange rate) goes down.
Higher import costs due to a weaker Rupee can exacerbate India's CAD.
Imported goods become costlier, contributing to inflationary pressures within the economy.
The RBI uses these reserves to intervene in the forex market and curb Rupee volatility.
RBI's interest rate decisions and liquidity management can influence capital flows and the Rupee's value.
Outflows of FPI are a direct cause of Rupee depreciation, as seen in the article.
GS Paper 3: Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment. Government Budgeting. Balance of Payment. Investment models.
General Awareness: Indian Economy, Current Affairs.
Economic & Financial Awareness: Forex Market, RBI policies, Inflation, Balance of Payments.
General Awareness: Indian Economy, Current Events.
General Knowledge: Basic economic concepts, Current Affairs.
High for all competitive exams, especially those with an economics or current affairs section.
Decrease in the value of the Indian Rupee relative to other currencies.
Withdrawal of investments by foreign entities from a country's financial markets.
When a country's total value of imports of goods, services, and transfers is greater than its total value of exports.
Assets held by a central bank in foreign currencies, used to back liabilities and influence monetary policy.