Depreciation of Rupee in the past 2 Months

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