That was the first nursery rhyme we learned by heart, and now we gotta learn something else by heart: the graph by which the rupee falls to dollar daily! 

Experts in the financial industry have many different views regarding what is next for the rupee, which continues its decline against the US dollar.

On Monday, the rupee closed at an all-time low of ₹92.40 per dollar as a result of soaring international oil prices, continued capital outflows from foreign sources and volatile capital markets due to rising geopolitical tensions throughout the world.

The rupee opened Monday at ₹92.44 and dropped to a low of ₹92.47 before closing at ₹92.40. On Tuesday, the rupee remained under selling pressure, losing 14 paise against the US dollar on the interbank foreign exchange market and closing at ₹92.42 from the previous day’s close of ₹92.40. 

SIGH! 

But..wait..how did this happen? 

Analysts attribute the depreciation of the rupee to a combination of domestic and international market conditions including higher energy costs with lowering GDP growth rates, widening trade imbalance between India and its trading partners and declining money supply growth rates due to changes in global monetary policy and geopolitical crises. 

The Main Causes 

According to analysts, there are two major contributing factors to the rupee’s depreciation, both long-term structural trends, the rise in world crude oil prices and the ongoing capital outflows from foreign investors.

We didn’t want a do-dhaari situation like this, babaji! 

Increasing World Crude Oil Prices

First and foremost, according to proponents of this view, is the increase in the world price of crude oil. Brent crude is trading at above $100 per barrel (USD$104 to USD$104.69), which has put upward pressure on India as it imports more than 85% of its crude oil requirements.

India’s cost of importing items increases each time oil costs increase. Oil Importers have to get more U.S. dollars in order to pay for their imports, which increases the way in which U.S.dollars are required and subsequently weakens the value of the Rupee.

Oil prices are also extremely volatile due to ongoing geopolitical hostilities in West Asia (Middle East) and, in particular, at the Strait of Hormuz, which is considered to be the most significant oil trading territory throughout the World.

Yup, we live in a world where Hormuz is the MAIN CHARACTER who has owned the algorithm for months now…

A substantial amount of the global oil supply has to pass through the strait, and when there are events that disrupt any of this supply chain, oil prices increase significantly.

It is the opinion of several analysts that if oil prices continue to rise, India will have a larger trade deficit and will continue to put pressure on the nation’s currency.

According to the Senior Research Analyst of IndusInd Securities, Jigar Trivedi, the continuing rises in oil prices will require continuing larger amounts of dollars being purchased by people importing oil into India, and over time this will lead to a larger Trade Deficit for India with a significant Trade Shock occurring.

Foreign capital outflows represent the second reason for the decline of the rupee.

Foreign institutional investors continue to exit from the equity markets and have been reallocating their investment schemes away from Indian equity into U.S. dollar-denominated investments, as money from these investments continues to be moved into safer assets.

As per the rules of the stock market, foreign institutional investors sold net cash of ₹10,716.64 crore from the equity markets during one trading day.

When capital exits from all of the Indian investments and returns to the U.S. market, investors must convert their money from rupees into U.S. dollars; this ultimately creates a greater demand for the dollar, which in turn, places downward pressure on the value of the Rupee.

In addition to the above-mentioned factors, both investor sentiment and increasing global uncertainty (i.e. geopolitical factors and decisions made by Central Banks regarding their monetary policies) have caused investors to become increasingly cautious. 

The latest trade report in India shows how these economic shifts are demonstrating more broad fundamental issues surrounding the currency itself, specifically with regard to the structural pressure caused by increasing divergence in margins between the export and import.

Recent government data shows:

• An $27.1 billion trade deficit for February had decreased somewhat.

• Export values had decreased by 0.812% to $36.61 Billion

• Import values had increased by 24.11% to $63.71 Billion

Intervention by the Reserve Bank of India (RBI) and Foreign Currency Reserves.

The RBI has been monitoring the currency’s situation closely in terms of attempting to stabilize the Indian currency from unnecessary volatility; and hence, through the use of intervention when necessary.

To achieve this purpose, it is common practice for central banks to sell US dollars from their foreign currency reserves to allow for the currency exchange rates to remain stable during periods of increased volatility in the market.

The most recent data from the RBI indicates that the country’s Foreign Currency Reserves have decreased from the previous week by $11.683 billion (to $716.81 billion) compared with the prior reporting week in which the amount was increased by $4.885 billion (to reach the highest level in history of $728.49 billion).

While the current decrease in Foreign Currency Reserves may be indicative of continued currency intervention, India has a high level of Foreign Currency Reserves due to India’s large and growing global trade economy in comparison to those markets defined as developing.

While the rupee has declined significantly, the Indian equity markets have been showing some positive momentum.In the same period, the Sensex rose by more than 900 points to 75,500 points (+1.3%). The Nifty also rose by over 250 points to 23,400 points (+1.1%). The strong showing of domestic equities helped cushion the currency from falling more precipitously, according to forex traders.

“100 Will Make The Math Easier” Reddit Reacts HARSHLY 

Reddit gets REAL and how! 

Not everyone is able to see the positives of the situation, and Redditors are here to show the mirror. 

One comment on Reddit made the following statement:

“USD is down, Rupee is down. If USA is #1 then therefore India is #1. We are indeed Vishwaguru.”

Other comments suggest that the rupee may depreciate further still:

“There are many people saying that we are headed to the USD 100 mark. This should be in another 1 or 2 years.”

Still some users are discussing what real estate investments will look like with the depreciated currency and impacts on foreign interest:

“NRIs are living the dream…They will now have to park even more of their USD in Indian real estate making it even more unaffordable for the average Indian.”

Another user illustrated how a depreciating rupee means that investment returns from Indian real estate when converted back into U.S. dollars will be lower:

“If someone bought real estate when the USD was trading at 60, their property may still not be worth anything in USD…”