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Rupee tumbles to 63.13 on heavy capital outflows

30 against the dollar. the rupee breached the 63-marck hitting a historic low of 63. .6 per cent from its previous close. AUG 19: • Falling over 2.Deep into the news MUMBAI.13 per dollar on account of heavy capital outflows from the domestic equity market. the rupee fell 165 paise on Monday as heavy outflows weighed on the currency. The rupee closed at life-time low 63. • Despite the Reserve Bank of India’s measures to restrict capital outflows.

 ..Lets analyze.

especially oil that is now ruling at over $107 per barrel. . .Analysts say these are the reasons for the fall of the rupee. . Demand for rupees. High inflation and a strong growth in the Indian economy have already forced the RBI to raise interest rates. has dipped because capital inflows are down. has also led to an increase in domestic inflation and a fall in the value of the Indian currency. • The higher price of imported goods. simultaneously. The main reasons behind the fall of the rupee are an increased demand for dollars due to a spurt in crude oil prices and the flight of foreign funds from the Indian market. • The growing Indian trade deficit and the large fiscal deficit are also contributing to the fall of the rupee.

• An NDF is a non-deliverable forward contract where financial institutions buy forward dollars (that that on the delivery date they make a profit or loss. . is the overseas nondeliverable forward (NDF) market that is not sanctioned by the Reserve Bank of India. which is the difference between both the rates. as propounded by some economists.• One more reason for the fall of the rupee. they book dollars now for delivery at a predetermined future date) in the Indian market and at the same time sell a similar amount of dollars in an overseas market -or vice-versa -.

companies and individuals will have to pay more for the money they borrow: in other words. • · Indian companies which could borrow from the overseas markets at cheaper rates to finance their import and export needs will be badly affected.What happens if the rupee keeps on falling? • · As the rupee falls. This means that the Indian government. . • · Another problem is that it might discourage foreign institutional investment from pouring funds into the Indian markets. foreign investors will want bigger returns for their money to compensate for the higher risk. higher interest rates. • · A major problem with a falling rupee is that it will increase the Indian government's burden of repaying and servicing foreign debt.

like steps to control rising inflation. • Normally.more and more global funds would begin to invest in India thereby strengthening the rupee as the demand for the dollar in the local markets drops. But. • they did in the last couple of years -. Short-term interest rates changes do impact the value of the rupee against other currencies.How can India control the value of the rupee in the international market? • The Reserve Bank of India can sell dollars in the open market to bring down the value of the US greenback. . the RBI has mostly used the policy to stabilise internal conditions. albeit slightly. if the Indian stock markets boom -. the RBI uses its Monetary Policy to defend the rupee's value.