Why Is Rupee Falling Against US Dollar?

The rupee on Friday dropped sharply against the US dollar, approaching the 75 mark. The currency was trading at 74.86 per dollar at 1 p.m., down 0.33% from its previous close. The rupee has lost nearly 2.4% against the US dollar so far this year.

The domestic currency opened at 74.75 against the US dollar on the interbank forex market, down 17 paise from its previous close. The domestic currency has lost 146 paise in value against the US dollar over the last four sessions. The rupee ended at 74.58 against the US dollar on Thursday.

The RBI based its growth and inflation forecasts for the Indian economy on the assumption that the exchange rate would be Rs 72.60 per US dollar.

Why did Rupee drop To Eight-Month Low against the US dollar?

Considering the Reserve Bank of India's (RBI) massive bond purchase programme amid inflationary concerns, the Indian rupee fell to an eight-month low against the US dollar on Friday. The domestic currency is trading on a low note, according to traders, as investors believe the central bank's bond-buying plan will be negative for the currency due to inflationary concerns.

The dollar index, which measures the strength of the greenback against a basket of six currencies, increased 0.25%to 92.305.

Fears that a rapid revival of Covid cases in the country could derail the country's economic recovery also weighed on the rupee.

The rupee witnessed pressure after RBI's announcement of $1 billion in bond purchases, the unwinding of carrying trades, the perception of a full lockdown due to rising cases, and panic buying by importers.

The cost of imports rises when the rupee falls, putting the country's households at a disadvantage. This has a negative impact on India's economy, which is based on imports. However, NRIs, of whom India has a large number, can profit from depreciating currency. The Reserve Bank of India (RBI) controls the supply of the rupee in the market, making it cheap or expensive.

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