Winning Bizness Desk
Mumbai. The Indian rupee tumbled to a new all-time low, closing at Rs 84.09 against the US dollar, marking an 11-paise drop. This decline surpasses the previous record of Rs 83.99, set on August 8, 2024. The latest fall is attributed to multiple factors, including rising global crude oil prices and foreign investor sell-offs in Indian markets. Additionally, escalating tensions from Israel's conflict with Iran and Lebanon have also impacted the rupee’s performance, causing further depreciation.
Intraday Low and Market Impact
During intraday trading on Friday, the rupee touched an even lower mark of Rs 84.11, according to a Reuters report. The rupee initially opened at Rs 83.98 but slipped throughout the day. Experts warn that the rupee might continue to weaken, potentially hitting Rs 84.25 in the coming days.
Implications of the Declining Rupee
The fall in the rupee’s value will have wide-reaching implications. Imported goods and services will become more expensive, as India will need to spend more rupees to buy foreign products priced in dollars. This could lead to increased costs for items like electronics, petroleum products, and raw materials, affecting the overall inflation rate.
Additionally, Indian students studying abroad, particularly in the United States, will feel the pinch. As the exchange rate weakens, they will need more rupees to cover costs for tuition, accommodation, and other living expenses. For example, when the rupee was valued at Rs 50 against the dollar, students needed Rs 50 for every dollar spent. Now, with the rupee hovering around Rs 84, students must spend Rs 83.40 for every dollar, making overseas education significantly more expensive. Travel expenses abroad will also rise, adding costs for those planning vacations or business trips outside India. With a weaker rupee, international flights, hotels, and other expenses will now require more rupees for the same dollar-denominated services.
How Currency Value is Determined
Currency value is largely influenced by a country’s foreign exchange reserves. When the reserve of dollars in a country decreases, the value of its currency weakens in comparison to the dollar. In India's case, as the dollar reserve diminishes, the rupee depreciates, leading to its weakening. Conversely, if the dollar reserve increases, the rupee strengthens. This system, known as the floating exchange rate, ensures that currency values are constantly fluctuating based on market forces. With the rupee continuing to slide, India faces increasing challenges in managing the costs of essential imports, while global uncertainties further add to the currency's volatility. Market analysts will be closely monitoring both global and domestic factors to gauge the rupee’s trajectory in the coming weeks.