Data | Hitting record lows: What is driving the rupee’s fall?
On Monday, the Indian rupee slumped to an all-time low of 77.36 against the U.S. dollar. Foreign outflows and elevated oil prices have accelerated the rupee’s fall. This has coincided with foreign portfolio investors continuing to withdraw funds from Indian equities and remaining net sellers for the past seven months. Moreover, since March, crude prices have hovered above the $100 per barrel-mark on most days following Russia’s invasion of Ukraine. In this scenario, a weak rupee will further inflate the country’s import bill. India’s foreign reserves have also been dented due to the central bank’s intervention in the spot market to prop up the Indian unit.
At its lowest point
The chart shows the Indian rupee exchange rate vis-a-vis the U.S. dollar between January 2010 and May 2022. The value of the rupee reached an all-time low on May 9. The rupee’s previous low came on March 7, 2022 when it touched 76.92.
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The rupee’s fall has been accentuated by an exodus of foreign portfolio investors from the stock market. Investors have resorted to intense selling as April was the seventh consecutive month that foreign outflows were higher. So far, in calendar 2022, foreign investors have pulled out $18.27 billion from the Indian stock market.
Surging crude prices
The chart shows the month-wise value of India’s crude imports (in $ billion). Crude oil prices have soared due to the Russia-Ukraine crisis. As the rupee depreciates, it will increase India’s import bill and widen the trade deficit.
Denting forex reserves
Foreign reserves fell below $600 billion in the week ending April 29. The decline is likely due to the Reserve Bank of India’s intervention in the forex market to arrest the rupee’s fall by selling dollars. The chart shows week-wise India’s foreign reserves (in $ billion) from January 2021 to May 2022.
Source: IMF, NSDL, CMIE