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Last Updated : Aug 31, 2019 10:54 AM IST | Source: Moneycontrol.com

Explained: Rupee slide

Some economists believe that fundamentals remain challenging for the rupee, and it could keep depreciating given the global and local headwinds.

Moneycontrol News @moneycontrolcom

The Rupee seems set for biggest monthly loss in 6 years. Let's look at the prime reasons behind the sharp fall and what are experts saying about its future course. Weak fundamentals aside, the currency is also in a seasonally weak month. Bloomberg data suggests that --The rupee has slid an average 2.3% in August over the past nine years. Yet this time, the losses are much larger than usual and have erased gains accumulated in June and July.

So what are the reasons behind fall in the rupee?

The rupee has been spooked by a combination of global and domestic factors. Demand for everything from cars to cookies has waned as India’s lingering shadow- banking crisis weighs on private consumption, which accounts for almost 60% of the gross domestic product. Large fund outflows have fuelled the rupee’s weakness. Foreigners have pulled 3.8 billion dollars from local shares since July, as a tax on the super rich was announced in the budget last month. On the global front, escalation in the trade war between the US and China has dampened risk sentiment and outlook for global growth. Rupee’s fortunes are also getting linked to the moves in the yuan, China responded to fresh tariffs imposed by the US by letting yuan depreciate. The yuan level is politically sensitive, as it could further intensify trade tensions and may hit export-led emerging economies badly.

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Is more pain yet to come?

Some economists believe that fundamentals remain challenging for the rupee, and it could keep depreciating given the global and local headwinds. They also point out saying that If the Yuan continues to depreciate against the US Dollar, the rupee will depreciate virtually lockstep with the Yuan. JPMorgan expects the rupee to continue its slide to approach the record low which was hit last October by end of 2019 while Abhishek Goenka, Founder & CEO of IFA Global has written for Moneycontrol saying that a break below 72.9 against the dollar could push the rupee to a new all time low. But a weak rupee is not bad news for everyone. Investors in gold and exporters of goods and services in the country see higher returns in times of rupee depreciation. For exporters, a weak rupee increases competitiveness in global markets. In fact, Indian IT service providers are large beneficiaries of a falling rupee. Gold which is trading near record levels has also got a push from the weaker rupee

Experts however, have said that investors don't need to panic looking at the fall of the rupee and can take comfort in the fact that The Indian currency is still better off than most Asian and emerging market currencies.

For more on this, watch the video by Sakshi Batra .

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First Published on Aug 31, 2019 10:54 am
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