Moneycontrol
Last Updated : May 22, 2018 03:17 PM IST | Source: Moneycontrol.com

Here's how falling rupee affects your personal finance

When rupee is weak against the US dollar, it will affect any investment done abroad, foreign education and foreign travel.

Hiral Thanawala @thanawala_hiral

In the last three months, the rupee has depreciated close to 5 percent against the US dollar.

Anil Rego, CEO and Founder of investment advisory firm Right Horizons points out, “The rupee has weakened due to five factors - a surge in crude oil prices, yield fuelled increase in US Dollar index, weakness in emerging market assets, record net speculative bets on US dollar, and relatively weaker pace of foreign inflows into India.” A weak rupee directly affects your finances in negative as well as positive ways.

How weak rupee is bad?

A weak rupee compared with the dollar would mean high cost for imports. Abhinav Angirish, Founder of Investonline.in explains, “India is a large importer of crude oil in-turn affecting petroleum products which directly effects inflation. Higher inflation leads to increase in expenses and lesser savings thereby affecting personal finances (your budget). High inflation over a period can cause higher interest rates, too, thereby making loans expensive, too.” When rupee is weak against the dollar, it will affect any investment done abroad, foreign education, and foreign travel.

How weak rupee is good?

Rego says: “A weak rupee positively benefits remittance to India, and redemption of foreign investments.” But, it has a mixed impact on equity investors because the benefits accruing to export sectors are nullified by issues faced by importers.

Let’s go deeper to see how weaker rupee impacts your life

Foreign education

“Aspiring students for next year admissions will have to pay more for the forms of exams such as TOEFL, GRE, and GMAT. For existing students, the overall budget will be affected, right from application fee, examination fee, and the tuition fee,” says Rego. Cost of living will also increase for foreign students. Students at present who are on an education loan may also face problems. Paying fees on instalments will add to the problem if the loan sanctioned is less. So, this students will have to furnish remaining money from their own pocket. Students can take up part time job on campus to earn and bridge the gap between rising costs.

Foreign travel – vacation

Travelling abroad will mean a depreciating rupee is sure to burn a hole in your pocket. But it also depends on the exchange rate between rupee and the currency of the country you have chosen to travel. Rego warns, “The cost of travel could go up by at least 10-15% due to a weak rupee which has shed over 5% against US dollar in last few months." The budget conscious traveller should plan to have a shorter holiday overseas. However, if you had made your bookings in advance, you may not feel the pinch.

Dr. K Vijayakumar, Chief Investment Strategist, Geojit Financial Services advices, “You can plan your vacation in Asian country as rupee has not depreciated vis-à-vis many Asian currencies. With this you will not go beyond your budget while planning for foreign vacation.”

Medical costs

A depreciation in rupee even pushes up the cost of medical care. “About 30-40 percent of a hospital's cost is on account of medical equipment and of these, 80 percent is imported. Patients going abroad for treatment will also see an increase in cost due to the rupee's fall,” says Rego. The only way to avoid is health insurance that can help you deal with rising medical costs.

Buying a car

The automobile segment has extensive imports for manufacturing of a car by the companies. “Higher cost of imports will increase the manufacturing cost resulting in higher prices. The inputs that are imported are steel, other metals, electrical fittings, plastics and wires,” says Vijayakumar. If this trend continues, it could lead to higher prices when you step out to buy a car.

Dining out and grocery / consumer electronic purchases

Now, when you visit an international food chain with your family on weekend don’t be surprised to see hike in food items you regularly eat at the restaurant. Weaker rupee leads to increase in cost of imported food items. Further, with rise in crude prices the cost of fuel has also increased leading to increase is transportation cost of grocery/fruits/vegetable products you purchase on regular basis. All these increased costs are passed on to consumers and consequently higher family expenses.

Rego advices, “You stick to your budget as far as possible and need to curtail unnecessary monthly expenditure.” Consumer electronics, which include LED televisions, refrigerators, air-conditioners, laptops, mobile phones, cameras, etc., with imported components will also increase.

First Published on May 22, 2018 12:51 pm
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