Rupee Depreciation

Presented ByThe Nutcrackers

Nihar RoutrayManjesh Bharati

Shankar NarayanChinmay Sharma

Rupee Depreciation

Reasons and

Effects

Reasons for Rupee Depreciation

WITHDRAWAL OF INVESTMENTSRecession in developed economies like US made big institutions to pull out their money from India

EUROZONE CRISIS

Default concerns of European nations has resulted in loss of confidence in the Euro and appreciation of dollar

GOLD PRICE RISEThe fear of bubble bursting in gold has resulted in investors viewing dollar as a safe currency

TRADE DEFICIT• Trade deficit has widened by 40,000 crores in

the last quarter. This has resulted in increased imports and spike in dollar demand

Impacts of Rupee Depreciation

HIGHER IMPORT BILLS

Expecting current account deficit to settle at 3.0-3.1% of GDP by Mar 2012

FISCAL SLIPPAGE

INCREASED BURDEN ON BORROWERS

IMPACT ON EXPORTS

FAQS

Q> In 2008, we saw a drastic Rupee Devaluation against the USD. Is the current scenario similar?

A> No. Last time around, the devaluation was driven mainly by rise in oil prices. The price of oil reached USD 147 per barrel and was one of the key contributing factors. However, risk aversion was also a part which affected the value of the Indian Rupee.

Q> Has the Risk Aversion among the Investor Public changed when we compare the times in 2008 to now?A> The concept of risk aversion is the same. But, the current situation is much more riskier. Back then, the problem was due to debt problems in US. Right now, the problem is more profound and markets world-over are in a crisis. So, people are much more risk averse than what they were in 2008.

Q> If investors take out their investment from European countries to invest in US, would it have any effect on the exchange rate of rupee?

A> Not much. Only the US Dollar investments made in India will affect the exchange value between US Dollar and Indian Rupee. US Dollar investment in Europe will not affect the exchange rate in India.

Q> What can the RBI do?

A> Raise policy ratesA> Use FOREX reservesA> Ease capital controlsA> Administrative measures

Thank You