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Rupee Slips into its Lowest Value and its Impact on Economy

Published on May 11, 2022
Current Context: The Indian Rupee slips to its lowest value when compared to US Dollar as there is an increase in inflation and also federal reserve increased the rates drastically.
Rupee Slips into its Lowest Value and its Impact on Economy
  • Reserve Bank of India's (RBI) monetary policy committee (MPC) also could not stop the rupee's decline with their changed policy rates as a widening current account deficit possess a concern.
  • In order to counter the currency loss, RBI has been using forex reserves but even forex reserves have also been dropped to their lowest level in a year.
  • Presently India’s foreign exchange reserves have dropped below the $600 billion mark for the first time.
  • Even many western economies have imposed sanctions on Russia, which leads to volatility in global markets.
  • In fact, FPI also facing losses and creating selling pressure in Indian equities, till now they have sold a massive Rs 1.4 lakh crores worth of stocks in 2022.
  • The RBI is now trying to intervene in all foreign exchange markets so that they can protect the currency value.
  • How it may impact on economy
    • Due to the fall of the rupee, certain things will get expensive which directly impacts on spending decisions of households.
    • The import cost of goods and services will also get increased.
    • This will also lead to an increase in oil prices since India imports a major chunk of its oil needs.
    • Apart from that many imported items like luxury cars, car components, mobile phones and appliances may also become expensive.
    • It also impacts on tourism sector which contributes a major part to economic growth due to the fall of the rupee. Now tourist people will have to spend more money when compared to their previous trips.
  • Static Part:
    • Foreign Exchange Reserves
      • Foreign exchange reserves are such assets held by a central bank as reserves in foreign currencies, which can include bonds, treasury bills, and other government securities.
      • This also includes Foreign Currency Assets, gold reserves, special drawing rights, and reserve position with the International Monetary Fund.
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