Rupee Shock: Fuel, Imports, Foreign Studies to Cost More

The Indian rupee slumped below the 95-per-dollar mark for the first time, as a strong dollar atmosphere, rising oil prices, ongoing West Asia conflict, continue to mount pressure on the currency. The rupee hit a record intraday low of 95.21 against the US dollar. In the March quarter, the currency has depreciated 4.4% against the dollar.

The massive Foreign Institutional Investor (FII) outflows, rising oil prices and geopolitical instability, led the rupee to become Asia’s worst-performing currency.

On Monday, the trading session saw the rupee plummet to an intra-day low of 95.02 before recovery efforts pushed the closing price to 94.78. Forex traders said the US dollar and Indian Rupee pair is facing pressure from the elevated dollar index and crude oil prices. The global oil benchmark, Brent crude, was trading at $115.50 per barrel, in futures trade.

Impact of Weakening Rupee

The freefall of the Indian rupee could lead to increasing inflation, as fuel, imported goods and raw materials could become costlier. The slump of the Indian currency against dollar would force households to face higher expenses.

Students pursuing academic abroad will also be paying more, following the weakening of Rupee.  Conversely, the devaluation of rupee would benefit exporters in sectors like IT and pharma, and also boost remittances.

India imports over 80% of its crude oil, electronics, edible oils and fertilizers. As the rupee value weakens, the cost of these import would increase, making them expensive.

RBI’s Attempt

In a bid to arrest the fall, the RBI introduced new restrictions on commercial banks regarding how much foreign currency the y can hold overnight. The RBI capped the overnight position at $100 million (approximately Rs 940 crore) which forced the lenders to offload dollar reserves, providing some temporary cushion to the local currency.

The RBI directive had some impact on the currency when the rupee staged a sharp 128-paise recovery in the morning session and touched 93.57. However, the gain did not sustain for a long time as demand for dollars by oil importers increased and the exit of FIIs was overwhelming.

Following the drastic fall of rupee, Indian stock markets tumbled with the Sensex plunging over 1,837 points and the Nifty closing near the crucial 22,500 level, wiping off more than Rs 14 lakh crore from the total market capitalization of all BSE-listed companies, bringing it down to Rs 414.77 lakh crore.

For the rupee, the road ahead is replete with challenges as the US dollar continues to maintain its global dominance.