Rupee fall precipitated by global factors, crude price, foreign outflows, says finance minister

Finance Minister NIrmala Sitharaman | Illustration: Moneycontrol

The fall in the exchange rate of the Indian rupee is led by global factors such as surge in crude oil prices and tight financial conditions as well as foreign portfolio outflows, Finance Minister Nirmala Sitharaman said on July 18.

“Global factors such as the Russia-Ukraine conflict, soaring crude oil prices and tightening of global financial conditions are the major reasons for the weakening of the Indian rupee against the US dollar,” the minister said in a written response to a lawmaker’s question in the lower house of parliament.

“Currencies such as the British pound, the Japanese yen and the euro have weakened more than the Indian rupee against the US dollar and therefore the Indian rupee has strengthened against these currencies in 2022.”

While the depreciation of a currency is likely to enhance export competitiveness, it would also make imports costlier, the minister said.

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The Reserve Bank of India regularly monitors the foreign exchange market and intervenes in situations of excess volatility and India has raised interest rates in recent months that increase the attractiveness of holding Indian rupees for residents and non-residents, she added.

The central bank has also undertaken several other measures to help the rupee that has fallen to record lows against the dollar over the last several sessions. It is still trading close to the key psychological level of 80 to the dollar.

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Monetary tightening in advanced economies, particularly in the US, tends to cause foreign investors to withdraw funds from emerging markets, the minister said.

Foreign portfolio investors have withdrawn about $14 billion from Indian equity markets so far this financial year, she added.