Meaning Of Weakening Rupee: Why Are Foreign Investors Refraining From Taking Risk, Will The Increase In Repo Rate Pay Off

Expansion

In the era of rising interest rates, Foreign Portfolio Investors (FPIs) are hesitating to take risk and are investing in dollars by withdrawing their money from India. As a result, the rupee is depreciating continuously. Along with this, banks are also continuously buying dollars. The rupee has been depreciating against the dollar for the past few weeks. On June 22, the rupee had depreciated by 31 paise to close at 78.39 against the dollar.

On June 20, the rupee had closed at 78.08 and earlier on June 13, the rupee had closed at a low of 78.28. On Tuesday, the rupee fell to a low of 78.75 against the dollar. According to the National Securities Depository Limited (NSDL) data, FPIs posted a net sell of Rs 2.08 lakh crore this year and sold Rs 2,200 crore daily. Since the start of the war between Russia and Ukraine, FPIs have been selling Rs 4,500 crore per day.

The central bank is constantly trying to contain the weakness of the rupee, but so far it has not got much success. On June 15, the US Federal Reserve raised the interest rate by 75 basis points and it is being said that the Federal Reserve may increase the interest rate in the next meeting proposed in July. So far in the year 2022, the Federal Reserve has increased the interest rate by 150 basis points.

The Bank of England also increased the interest rate by 1.25 percent on 16 June, the highest in 13 years. Inflation in the euro zone has broken the 40-year record and has reached a level above eight percent. The Reserve Bank of India has increased the repo rate by 0.50 percent in the recent monetary review. Earlier, in the first week of May, the repo rate was increased by 0.40 by the central bank.

With the latest hike in the repo rate, it has risen to 4.90 per cent. After the increase in the repo rate, banks are increasing the lending rates. State Bank of India has hiked the lending rate by 20 basis points on June 15. Due to the depreciation of the rupee, the purchasing power of the people decreases. In the current scenario the purchasing power of the people of India has reduced. In such a situation, the income of the people does not decrease, but due to the fall in the price of money, people have to spend more money to buy any item, due to which they are neither able to buy the necessary goods nor able to save.

At the same time, economic activity begins to slow down. There is a decline in both production and growth rate. Job creation stops and jobs start slipping out of the hands of the people. Due to inflation, there is a decrease in the demand for various products and due to the decrease in demand, factories have to reduce production, due to which the companies have to suffer and due to the negative condition for a long period, the companies also get closed. Huh.

In fact, from the year 1960, the consumption of crude oil in India started accelerating, as more crude oil was needed in the country to keep the various parameters of development moving. Till the year 1965, the value of rupee in the international market was measured in pounds, whereas from the year 1966 in the international market the rupee was measured against the dollar. In the year 1966, the price of one dollar was 7.5 rupees, which is now on the verge of reaching 80.

Decreasing the value of its currency is not considered good for the health of the economy of any country. At the same time, it is also not right to try to stop the weakness in the rupee in a hurry, because the increase in policy rates can curb inflation to some extent, but it can reduce investment, credit growth, employment generation etc. Which play an important role in accelerating the pace of development.