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5 reasons why the rupee has hit 9-month low

5 reasons why the rupee has hit 9-month low
The rupee on Wednesday hit a 9-month low and is now threatening to hit a historic low against the dollar. Here are 5 reasons why the rupee has been hitting lows and could even breach its lifetime low.

Dollar strength against other currencies

The dollar has been gaining ground not only against the Indian rupee, but also against other currencies like the euro. This is largely on account of a robust economic recovery in the US. As US economic recovery gathers steam, expect the US dollar to gain against other currencies, including the Indian rupee.

Gold imports are surging

Falling gold prices have seen demand for gold rising in India. In fact, for the month of April gold imports have doubled. Rising gold imports pushes the trade deficit higher and has an ultimate bearing on the rupee.

Widening trade deficit

A more than doubling of gold imports worth $7.5 billion from $3.5 billion pushed up the trade deficit to $17.7 billion in April. Widening trade deficit subsequently pushes the rupee to lows against the dollar.

Foreign fund flows drying up

Foreign funds which invest in Indian markets and bring in dollars have seen investments slowing. Though they have pumped record money into the stock market, the pace of funds has been slowing.

Lack of RBI intervention

Normally, when the rupee falls the RBI sells dollars to help recovery of the rupee. However, dealers say that the RBI has not been intervening. In fact, the RBI has made it clear in the past, it will intervene only when there is excess volatility in the forex market.

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