Rupee Hits US Dollar : The Indian rupee has come a long way. It is estimated that in the year 47, the value of the Indian rupee against the US dollar was 4 rupees 16 paise. But today this price has become 81 rupees 23 paise.
For the first time in history, the rupee has slipped below the 81 mark against the US dollar. The rupee opened at 81.08 against the dollar at the Interbank Foreign Exchange Exchange today, then fell to 81.23, a decline of 44 paise over the previous close. On Thursday, the rupee had fallen by 83 paise and closed at an all-time low of 80.79 against the dollar. The rupee has depreciated around 8.48 per cent so far this year.
Meanwhile, the dollar index, which gauges the greenback’s strength against a basket of six major currencies, rose 0.05 per cent to 111.41. Forex traders said increased geopolitical risks in Ukraine and rate hikes by the US Fed and Bank of England have strengthened the dollar and investors are hesitant to take any risk.
Role of Reserve Bank
To strengthen the rupee, the Reserve Bank intervenes in the money market and starts selling the dollar. But this time the Reserve Bank has not done so yet. It is not clear whether the Reserve Bank will intervene in the money markets to stabilize the rupee.
Before the current weakness of the rupee, the rupee was considered the best performer due to resumption of foreign investment in equities, fall in crude oil prices and aggressive market intervention by RBI.
However, the rupee has suffered more losses than other emerging market peers since Thursday, fueling speculation that the Reserve Bank is allowing the Indian currency to keep pace with the new reality of US interest rates. After market intervention since late February, RBI’s forex reserves are currently at a two-year low of around $550 billion.
how is the price fixed
The value of rupee is determined by its demand and supply against the dollar. The exchange rate of both the currencies has an effect on the import and export of the country. Every country maintains reserves of foreign currency, usually dollars. The goods imported from this currency are paid for because the international side is done in dollars only. What is the position of foreign exchange reserves, and what is the demand for dollars in the country during that time, it also determines the strength or weakness of the rupee.
high dollar effect
India has to import about 80 per cent of its oil requirement and for this a huge amount of dollars has to be spent. The oil import bill puts pressure on the country’s foreign exchange reserves, which ultimately affects the value of the rupee.
trend so far
Before independence, the Indian rupee was then tied to the British pound, due to which the value of the rupee remained stable for a short time. According to reports, from 1927 to 1966 the price of 1 pound was Rs 13. While the dollar was worth Rs 4 16 paise.
The pound-rupee link ended in 1966, and with it the depreciation of the rupee. Until 1971, when India began its post-independence five-year plan, the Indian rupee was pegged at 7.5 per dollar against the US dollar.
It is said that the economic crisis of 1991 was the most challenging period for the Indian economy. During that time, the fiscal deficit was 7.8 percent of GDP, interest payments accounted for 39 percent of total government revenue and the current account deficit was 3.69 percent of GDP. The situation was such that India was on the verge of being declared a defaulter. To address all these issues, the government once again depreciated the Indian currency, resulting in a dollar value of Rs 24.58.