Sinking rupee

Sinking rupee

News:

1. Rupee weakened against the U.S. dollar.

Important facts:

2. Rupee weakened past 69 intraday against the U.S. dollar, an all time low.
3. The rupee, which has lost almost 8% in value since January1, is the worst performing currency in Asia this year.
4. However, this is not the only currency to be in Doldrum.
5. Emerging market currencies as a group have witnessed a sharp correction in their value against the dollar this year.
6. The MSCI Emerging market index, for instance, is down about 6% since the beginning of April.
7. Reasons for decline in Rupee:

• Rise in international crude oil prices.
• India’s current account deficit, which jumped to 1.9% of GDP in the fourth quarter of 2017-18 from just 0.6% a year earlier is now expected to widen to 2.5% in FY 2019.
• The dollar index, which gauges the value of the dollar against currencies, is up about 7.5% since February.
• The rise in global trade tensions.
• Tightening of U.S. monetary policy.
• Investors attracted by higher yield in the U.S. have been pulling their capital out of India.
• Foreign portfolio investors, took out ₹29,714 crore in May, almost a doubling of outflow compared to ₹15,561 crore in April.
• Most of the foreign fund outflow this year has come out of the bond market, which explains the steep fall in Indian bond prices.
• The American central bank expects to raise interest rates further this year.

8. Solutions:

• The government, as well as the Reserve Bank of India, which recently raised domestic interest rates in response to rising external economic risk need to think some alternate mechanism to avoid crisis.