Indian Rupee Plunges to Historic Low Against US Dollar

The Indian Rupee has depreciated to an unprecedented 290 against the US dollar, marking an all-time low.

Photo by Ishant Mishra

The Indian Rupee has hit a new historic low, trading at 290 against the US dollar. This significant depreciation means that it now costs more rupees to buy one dollar than ever before. What does this mean for India? Essentially, imports become more expensive, as Indian businesses and consumers need to pay more rupees for goods and services bought from abroad.

This can fuel inflation, especially for essential imports like crude oil. On the flip side, exports become cheaper and more competitive, which could boost demand for Indian products in international markets. However, the overall impact of such a sharp fall often raises concerns about economic stability, foreign investment, and the country's balance of payments.

The Reserve Bank of India (RBI) typically intervenes in the forex market to manage excessive volatility, but a sustained depreciation indicates underlying economic pressures or global financial shifts.

मुख्य तथ्य

Indian Rupee reached an all-time low of 290 against the US dollar.

Currency depreciation makes imports more expensive and exports cheaper.

Can contribute to inflation, especially for imported goods like oil.

Impacts India's balance of payments and foreign exchange reserves.

UPSC परीक्षा के दृष्टिकोण

Impact of currency depreciation on various sectors of the economy (imports, exports, inflation, debt).

Role and tools of the Reserve Bank of India in managing exchange rate volatility.

Factors influencing exchange rates (interest rates, inflation, trade balance, capital flows).

Concepts related to Balance of Payments (Current Account Deficit, Capital Account).

Government's fiscal and trade policies in response to currency movements.

दृश्य सामग्री

और जानकारी

पृष्ठभूमि

The Indian Rupee's value is determined by market forces of demand and supply, influenced by various domestic and global factors. Historically, India has experienced periods of rupee depreciation, often linked to global economic downturns, rising crude oil prices, or domestic macroeconomic imbalances. The Reserve Bank of India (RBI) employs a 'managed float' exchange rate regime, intervening in the forex market to curb excessive volatility without targeting a specific exchange rate.

नवीनतम घटनाक्रम

The Indian Rupee has depreciated to a new historic low of 290 against the US dollar. This significant fall implies that it now costs more rupees to purchase one dollar, making imports more expensive and potentially fueling inflation, especially for critical commodities like crude oil.

Conversely, it makes Indian exports cheaper and more competitive. This event raises concerns about economic stability, foreign investment flows, and the country's balance of payments, prompting potential interventions from the RBI.

बहुविकल्पीय प्रश्न (MCQ)

1. Consider the following statements regarding the depreciation of the Indian Rupee against the US Dollar: 1. It makes imports, such as crude oil and electronic goods, more expensive for India. 2. It generally leads to an improvement in the Current Account Deficit (CAD) due to increased export competitiveness. 3. Indian exports become more competitive in international markets, potentially boosting demand. Which of the statements given above is/are correct?

उत्तर देखें

सही उत्तर: C

Statement 1 is correct: Depreciation means more rupees are needed to buy the same dollar-denominated imports, making them costlier. Statement 3 is correct: Indian goods become cheaper for foreign buyers, enhancing their competitiveness. Statement 2 is incorrect: While exports become cheaper, the import bill (especially for essential items like crude oil, which India heavily imports) often increases significantly in rupee terms, potentially widening the CAD rather than improving it, at least in the short to medium term.

2. In the context of the Reserve Bank of India's (RBI) intervention in the foreign exchange market to manage rupee volatility, which of the following actions would typically be taken to *strengthen* the Indian Rupee?

उत्तर देखें

सही उत्तर: A

To strengthen the Rupee, the RBI needs to reduce its supply and increase its demand. Selling US Dollars from its foreign exchange reserves and simultaneously buying Indian Rupees from the market achieves this by absorbing Rupees, thereby increasing its value. Option B would weaken the Rupee. Option C (reducing Repo Rate) is a monetary policy tool primarily aimed at stimulating economic growth, and while it can indirectly influence capital flows, it's not a direct forex intervention to strengthen the currency. Option D would increase the supply of Rupees, leading to its depreciation.

3. Which of the following factors can contribute to the depreciation of a country's currency in the international market? 1. Persistent Current Account Deficit 2. Higher domestic inflation compared to trading partners 3. Increase in foreign direct investment (FDI) inflows 4. Rise in global crude oil prices Select the correct answer using the code given below:

उत्तर देखें

सही उत्तर: B

1. A persistent Current Account Deficit means a country is importing more than it exports, leading to a net outflow of domestic currency to pay for imports, thus depreciating it. 2. Higher domestic inflation erodes the purchasing power of the currency, making it less attractive and leading to depreciation. 4. A rise in global crude oil prices increases the import bill for oil-importing countries like India, increasing the demand for foreign currency (USD) and putting downward pressure on the domestic currency. 3. An increase in Foreign Direct Investment (FDI) inflows brings foreign currency into the country, increasing the demand for the domestic currency and thus *strengthening* it, not depreciating it.

मुख्य तथ्य

UPSC परीक्षा के दृष्टिकोण

दृश्य सामग्री

पृष्ठभूमि

नवीनतम घटनाक्रम

बहुविकल्पीय प्रश्न (MCQ)

संबंधित लेख

आज की खबरें