The rupee this week plunged below the 68 levels, over rising crude prices, impasse in the Karnataka elections and a spike in bond yields, which generally makes the dollar firm against a basket of currencies. A closing price of 68 against the dollar has already resulted in a few things becoming expensive. Here are 7 ways the falling rupee will impact you.
1) Petrol and diesel prices
We are already seeing the impact of the falling rupee on petrol and diesel prices. Retail prices of the fuel are now at peak levels. Petrol price in Mumbai is now at near record levels of Rs 83.45, and diesel prices are retailing at Rs 71.42. in the city
As the rupee falls and petrol prices rise, it leads to inflation. Remember that in India a lot of transportation, especially for fruits and vegetable happens through road. A rise in fuel, could increase the various components of the CPI, including petrol, fruits and vegetables.
This is not good news for consumers.
3) Rise in interest rates
The falling rupee, would also likely trigger a rise in interest rates. Remember, that the RBi is mandated to control inflation, which means it could raise interest rates to tame inflation.
In fact, the CPI for the month of April rose sharply to 4.58 per cent. Most analysts had predicted that inflation would be 4.48 per cent. A hike in interest rates in the month of June or Aug 2018 by the RBI cannot be ruled out.
This means your borrowing costs on home loans, auto loans, personal loans and gold loans would increase.
4) Foreign studies or trips
Foreign trips and studies abroad are likely to get costlier. 10,000 dollars for travel purposes, which would cost Rs 6.6 lakhs a year ago, would now cost Rs 6.8 lakhs.
Similarly, your trip abroad would have cost less about a year ago, than today.
5) Current account deficit
A falling rupee, along with a rise in crude prices can cause severe damage to economic growth.
The Economic Survey in 2018 estimated that a $10 per barrel increase in the price of oil reduces economic growth by 0.2-0.3 percentage points and worsens the current account deficit by about $9-10 billion dollars.
6) FPIs may withdraw money from Indian markets
Foreign Portfolio Investors tend to withdraw money from the stock markets, if the rupee falls against the dollar. In dollar terms their portfolio value tends to get eroded.
No investor would like a situation when the currency is volatile. This may have some bearing on the stock markets.
7) FMCG products may become expensive
FMCG products like soaps and detergents tend to become more expensive, as a direct result of increase in crude prices, combined with a falling rupee.