The rupee is likely to fall to 77 against the dollar

Adverse effects on Indian currency, bonds and stock market in the wake of Russia-Ukraine war

The rupee continued to depreciate against the US dollar against the dollar. The dollar had crossed the 7 level last week. The dollar was heavily sold by public sector banks on behalf of the Reserve Bank of India. But even that has not benefited the rupee much. This is the biggest fall in the rupee on a weekly basis in the last 11 months. The rupee has depreciated 1.18 per cent against the dollar in the past week.

The Indian currency appears to be at an all-time low. If crude oil prices continue to rise, the rupee could touch સ્તર 5 against the dollar. Some believe that by the end of March, by the end of the military conflict between Russia and Ukraine, the rupee could begin to slide below the સ્તર 5 level.

'There are few occasions when financial markets are volatile due to geopolitics. Something similar has been happening for the last two weeks. The war between Russia and Ukraine is affecting Indian currency, Indian bonds and Indian stocks. Oil prices, the US dollar index and global stock prices are the main factors behind this.

Earlier, on April 12, 2020, the Indian rupee closed at 6.3 against the dollar, the all-time low of the rupee. On April 4, 2020, the rupee had touched an intraday high of Rs 4.5. This was the fourth consecutive trading session this week when the rupee weakened against the US currency.

One rupee in 19 is not like one rupee today in terms of both appearance and purchasing power. The value of a currency depends on factors affecting the economy, such as import and export inflation, employment, interest rates, and growth rates. It is also affected by trade deficit, performance of equity markets, foreign exchange, macroeconomic policies, foreign investment inflows, backing capital, commodity prices and geopolitical conditions.

Revenue levels and consumer spending influence the currency. When income increases, people spend more. Further demand for imported goods increases the demand for foreign currency and thus, the local currency weakens. Balance of payments, including balance of trade (net inflow / outflow) and inflow of capital. Which also affects the value of the currency.

Considering the recent RBI move to control interest rates on savings deposits and fixed deposits held by non-resident Indians, the move was part of a series of measures to stem the rupee's decline. By allowing banks to raise rates on NRI rupee accounts and equating them to local term deposit rates, the Reserve Bank expects the inflow of funds from NRIs, which will increase demand for the rupee and increase the value of the local currency.

(RBI manages the value of the rupee through a number of tools.)

Some of the ways in which the RBI controls the movement of the rupee include changes in interest rates, relaxation or tightening of the rules for the flow of funds, changes in the cash reserve ratio (the ratio of finance banks to the central bank) and sales.