Why Rupee's Fall Is Detrimental For The Economy? Is RBI Coming At Its Rescue?

Rupee led by a host of macro-economic factors has seen no respite off late and in a historical eve today has hit the high of 69.09 in the early morning trade today. Nonetheless, the domestic unit has remained rather buoyed and at 1:30 pm was trading 68.93 to a dollar.

Why Rupee's Fall Is Detrimental For The Economy? Is RBI Coming At Its Rescue?

And as the free fall of the rupee fuels a number of concern such as the inflationary pressure, current account deficit, the RBI in a general circumstance intervenes either by way of enhanced borrowing etc. to tame the free-fall of rupee.

Other pressures aggravating as a result of declining value of rupee is increased selling in the bond markets.

This week after crude oil price hovered at reasonable levels for quite some time has again got a lift up as the US asked allied nations to stop purchasing Iranian supplies.

Though some of the analysts view the Indian rupee to be not affected majorly from the global crisis, still it has emerged to be the weakest performing Asian currency so far this year with a decline of almost 8% since the start of 2018.

Keeping in view, some of the banks have estimated still higher levels for the rupee against the dollar at 72 given the rising crude oil price which is seen as a continuos unfavorable point for the government finances.

Steps taken by the RBI To regulate domestic currency

Increased repo rate: To not mar the development of Indian economy, the RBI in its June 4-6 MPC meet has revised repo rates higher by 25 basis points to 6.25% for the first time in over 4 years.

RBI sold dollars in futures market: While the demand for dollars has been ever-increasing, RBI has taken the futures market route as per a leading business daily report to tame the fall of Indian rupee against the dollar. The apex bank which otherwise resorts to open market operation in the spot market has taken the other route to not nullify the impact of OMO liquidity which relates to buying bond and infusing liquidity in the system.

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