Depreciation of Rupee in Past Two Months
Before we continue…
Repo Rate : The rate at which the RBI lends money to commercial banks is called repo rate.
Reverse Repo rate : The rate at which the RBI borrows money from commercial banks.
Cash Reserve Ratio (CRR) : The amount of funds that the banks have to keep with the RBI.
FII : Foreign Institutional Investor, An investor or investment fund that is from or registered in a country outside of India.
How is Currency valued?
When the demand is greater than supply, the value of the
currency increases and vice-versa.
USD v/s IN Rupee
Depreciation Of Rupee
RUPEE APPRECIATES
RUPEEDEPRECIATES
More and more
rupees are brought in
our country and
dollars are sold
More and more
rupees are sold and
dollars are brought
The Indian National Rupee (INR) has depreciated 15% in the past two months.
INR touched an all time high of 64.11 against US Dollar on August 08,2013.
The depreciation of Rupee has severely damaged the quality of Asset classes
Stocks or equities Fixed Income or bonds Money market or cash equivalents Real estate or other tangible assets
Advantages of Rupee depreciation to Indian Economy
Beneficial to the Exporters Good News for NRIs Benefits to the IT sector Benefits to Investors invested in International
Funds Benefits to the Hotel Industry
Disadvantages of Rupee depreciation to Indian Economy
Impact on inflation & fiscal deficit. A blow to Indian importers. Exporters face difficulty in securing new orders. Negative impact on FII flows to Indian market. Negative impact on Indian students and travellers
abroad
Reasons for Depreciation of Rupee for the past 2 months
FII outflow touches record high USD 7 Billion in June,2013 FII’s offload USD 3 Billion worth equities in July,2013. RBI kept interest rates unchanged. Increase in Crude prices. Increase in Fiscal Deficit of India. Unchanged Interest Rates BY RBI. USA initiated process of slowing down Bond Buying
programme. Strengthening of US Dollar against major world currencies Lucrative opportunities in other countries.
FII Outflow
Unchanged Interest Rates
RBI kept its interest rates unchanged in its ‘Monetary Review’ on June 17 and July 30.
Keeps repo rate unchanged at 7.25 percent. Reverse repo rate stays at 6.25 percent. Cash reserve ratio unchanged at 4.00 percent.
Effect of Unchanged Rates.
Quantitative Easing
Quantitative easing (QE) is an unconventional monetary policy used by central banks to stimulate the national economy when standard monetary policy has become ineffective.
US Federal Reserve announced Tapering QE on June 19,which started a ‘Fire sale’ in the world currency market, currencies of major countries started depreciating including India’s Rupee.
With the news of QE tapering Fii’s started offfloading their investments across Asian markets.
USD v/s IN Rupee
Impact of depreciation of Rupee on IB
Exporters are the biggest beneficiaries
NRIs become richer
Tourism industry will flourish as the
holidays in India will get cheaper.
Imports will become expensive •Oil prices will increase
•Rise in inflation
•Poor returns on FII’s
•Difficulty in repayment of loans
•Foreign education will get expensive
•Foreign holidays will get expensive
Impact on Economy
↑Imports
↑Inflation
↑Interest Rates
↓Fixed Income
↓ Growth
↓Jobs
Steps taken by RBI to curb Rupee Volatility.
RBI increases restrictions on gold import by Canceling Margin Funding to import gold.
The Govt. increased import duty on gold import to 8 % from 6 %. RBI creates Demand for rupee by sucking excess rupee liquidity. The apex bank restricted the limit of individual bank borrowing to
0.50 percent of its total deposits (or net demand and time liability). RBI increased the daily average requirement of CRR from 70
percent to 99 percent. The RBI will conduct sale of Government of India Securities to suck
up Rs. 12,000 crore.
Bibliography
www.moneycontrol.com www.moneylife.in www.cnbc.com profit.ndtv.com www.hindustantimes.com investing.money.msn.com www.rbi.org.in
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