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Author Topic: What can stop India's rupee plunge?  (Read 1412 times)

ForexMan

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on: September 18, 2018, 01:28:33 PM
The Indian rupee is languishing at a record low, hit by a combination of forces including higher oil prices and fleeing foreign investors. Pressure is mounting on India's central bank to act as a weak rupee stokes fears in the country's swelling middle class, writes Vivek Kaul.

At the beginning of April, $1 (£0.77) was worth 65.1 rupees. On 11 September, $1 bought 72.7 rupees - a record low for the Indian currency. In a little over six months, the rupee has slumped more than 11%.

Why is the rupee falling? One big factor is oil. India imports more than 80% of the oil it consumes. That dependency - coupled with higher oil prices - has seen the country's oil import bill shoot up this year. The oil import bill for the first three months of the financial year was $28.9bn, up from $18.8bn last year.

A higher oil import bill basically translates into a greater demand for dollars by the oil marketing companies, which bring oil into India.
Money takes flight

Along with the oil marketing companies, a greater demand for dollars has come from foreign investors who are pulling out of India.

Over the years, foreign investors have poured a lot of money into India's stock and debt markets. This was largely fuelled by all the easy money floating around the Western world in the aftermath of the financial crisis that broke out in 2008.

Foreign investors borrowed money at low interest rates and parked that cash in India and other emerging markets. Now with interest rates likely to go up in the United States and other parts of the Western world, there has been a dash to take money out of India, particularly the debt market.

Demand for dollars

As well as rising interest rates, the general global bearishness regarding emerging markets after crises in Argentina and Turkey has intensified India's currency woes.

In the three months to June, these investors withdrew $8.1bn from India. During the same period last year, they had brought $12.5bn into India. When these investors sell their Indian holdings, they get rupees. They sell these rupees for dollars, and thus push up the demand for the dollar.

https://www.bbc.co.uk/news/world-asia-india-45492856



Simdik

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Reply #1 on: January 19, 2019, 02:16:46 PM
Everything that start can stop sometime.



 

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