The Indian rupee has declined rapidly this year. Due to continuous selling by foreign investors and various other economic factors, the rupee has fallen to historic low against the US dollar, crossing the 90 mark. The rupee has depreciated 4.9 percent so far this year, making it the third-worst performing currency among 31 major currencies. However, the Turkish lira and Argentine peso have fared even worse. The special thing is that this fall in the rupee is happening at a time when the strength of the dollar itself has weakened by 70 percent.
Many reasons behind the fall of rupee
There are many big reasons behind this fall in rupee. Increasing trade deficit, heavy tariffs of up to 50 percent on Indian products, and outflow of foreign capital are among the main reasons for this. Failure to reach any agreement with the Trump administration is also putting additional pressure on the Indian currency. Despite crossing the 90 mark, the rupee continues to be under pressure, and its value has almost halved compared to 2011. This situation has posed a big challenge for RBI Governor Sanjay Malhotra, who is trying to maintain the stability of the rupee.
The Reserve Bank of India (RBI) is using several strategies to arrest the fall of the rupee. According to a Bloomberg report, the RBI issues confidential instructions to rupee traders, which could include different strategies every day – from selling $100 million every minute to major interventions. The RBI’s objective is to control excessive rupee volatility and speculation, not to aggressively manipulate the market.
What is RBI doing?
The report also said that daily meetings are held at the RBI headquarters in South Mumbai before market opening, where the situation with the rupee is discussed in detail. The Financial Market Committee and representatives of other departments participate in it. There may be several rounds of meetings to discuss the rising pressure on the rupee and possible intervention strategies, and the final decision is taken by the RBI Governor.
