USD vs. INR: Why is rupee falling against US dollar?


Friday, August 26, 2016

The Indian rupee has been battling and facing turmoil against the dollar since more than two decades now. If you are among those who frequently use Forex online for your travels, it is essential to know the reasons for the rupee’s depreciation.

Here are a few reasons why the Indian rupee has been falling against the U.S. Dollar:

  1. Global economic slowdown

The global economic slowdown is one major factor contributing to both the stock markets and the Indian currency fall. The Indian rupee has depreciated due to the slowdown and has been unable to regain its value. Hence the conversion from USD to INR always makes for a loss.

  1. Crude oil pricesOil Price FallingU.S. is the biggest importer of crude oil. When the crude oil prices go down, the U.S. saves more dollars in buying it. This strengthens the dollar and that leads to the fall of the Indian currency.
  1. India’s trade deficit

Indian exports contracted for the 13th month in a row in December 2015 as outward shipments shrank 14.75% to $22.2 billion amidst a global demand slowdown. Imports too plunged 3.88% to $33.9 billion. The trade deficit during the month widened to $11.6 billion as against $9.17 billion in the previous year. This heavy trade deficit weakens the Indian rupee in the Forex online market.

  1. FIIs and DIIs

Foreign institutional investors (FIIs) have been in the sell-off mode in the equity segment for the past three months and sold up to Rs. 7,146 crore. On the other hand, the Domestic institutional investors (DIIs) net buying stood at Rs. 9,249 crore during the same period. Since the buying being more than the selling, the Indian rupee depreciates.

  1. Difference in interest ratesshutterstock_289714148The way the Indian economy works is very different from the U.S. economy. The interest rates set by the RBI against the fixed US-Indian currency has led to a lot of attrition for companies who are globally present. Even those countries who import a lot of resources from emerging markets were also affected by this. Due to this difference in interest rates, converting foreign exchange from USD to INR goes in red.
  1. Persistent InflationInflation-GraphThe exchange rate largely depends on the inflation rate of the country. The Indian economy overall is in a state of turmoil and the inflation rate doesn’t seem to come down or stabilize thus leading to a poor exchange rate between USD and INR.
  1. Current account deficit

The rising current account deficit, possibly due to the severe problems faced by the Euro Zone, is a notable reason why the Indian rupee is depreciating. The Euro Zone has been historically one of India’s major trading partners. The rising current account deficit has depleted our foreign exchange reserve and thus led to a fall in the value of the Indian Rupee.

These are the prominent reasons why the Indian rupee is falling against the U.S. Dollar. It is important for all frequent travellers to be aware of these factors and make a wise decision when converting from USD to INR without incurring a heavy loss.

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One comment on “USD vs. INR: Why is rupee falling against US dollar?

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