Rupee slumps to a record low of 71 against the dollar
31 August 2018
The rupee slumped to a record low of 71 against the dollar on the interbank foreign exchange market today, down 26 paise from the previous close of 70.74 a dollar on persistent dollar demand from refiners.
The rupee opened lower at 70.95 a dollar and slipped further to hit its lifetime low of 71 against its previous close of 70.74.
While there may be various reasons for the rupee’s steady fall, including inflation, monetary policy, interest rates, balance of payments among others, the main reason for currency fluctuations can be traced to supply and demand.
Besides heavy outflows from stock markets, forex dealers said robust month-end demand for the dollar also helped push up dollar demand.
The US currency had strengthened against rival currencies on expectations of rising interest rates, while lingering Sino-US trade tensions and expectations weighed on the domestic currency.
Growing fears over inflation due to rising global crude oil prices and consistent outflow of foreign funds from the domestic equity market also weighed on the domestic currency. Benchmark Brent crude oil was trading at $78 a barrel in early Asian trade. Meanwhile, the BSE Sensex fell 78.64 points, or 0.20 per cent, to 38,611.46 points in early trade.
The weakening rupee will make crude oil, fertilisers, vegetable oils, medicines and iron ore, which India imports in large quantities, costlier. Though these items are not for daily consumption, they impact consumers indirectly.
Higher cost of imported raw materials could push up costs of FMCG goods like such as soaps, detergents, deodorants and shampoos.
Pulses and oil, which account for a large part of India’s imports, will also be affected.
Industries dependent on imports, people going abroad on vacation and students who have taken loans to fund their foreign degrees will also bear the brunt. Education loans are usually in rupees, but as students pay their expenses in a foreign currency, the cost of education and stay will increase.
The depreciation of rupee will impact the automobile sector by raising input costs, raising royalty payouts and raising borrowing costs.
Electronic consumer goods such as computers, televisions, mobile phones, etc, with imported components will also become costlier.