The Indian stock markets have been viewing a recent turmoil against the dollar since the inception of this year. The Indian currency has been trading low ever since and the current demonetization issue is set to make it fall for INR 70 at $1.
The Indian finance ministry has been monitoring the issue closely and regulating the domestic currency movements. The market volatility is expected to be stabilized soon.
The rupee opened at just above 66 this January but has fallen to 68.05 by the EOM.Several reasons may be responsible for the issue. Some of them have been discussed henceforth.
Why did the dollar outperform the Indian currency?
- Ever-increasing oil prices
The fuel is one of those particular assets which control the direction where the economy is headed. While US is the biggest importer of crude oil, it has to maintain its dollar reservoirs when the oil prices go down. It hence takes a considerable hit upon the Indian rupee and other major currencies of the economic infrastructure. The forex market fails to dilute the repercussions of the economic slowdown due to minimized inflow of dollars into the market. Hence, the fall in prices is observed.
- Global economic slowdown.
The economy of the globe has been on a recession while in the recent days. This may be accounted as a major factor to contribute to the fall of the Indian rupee. China has also witnessed a fall in the valuation of yuan. It has been witnessing an economic slowdown with the IMF retierating and slashing the global growth forecasts which reportedly has been the third time in the year. A sharp slowdown has been observed in China trade and the commodity prices have weakened too.
- Trade Deficit India:
The nation has viewed several trade recessions with the export shipments decreasing by over 14.75 percent to $22.2 billion midst a demand slowdown which has been observed across the globe. Imports have plunged and the trade has been on a deficit and the reviews have widened over the period.
4. Rising import Bill
Oil and gold imports have been an active part of the Indian trade infrastructure. As a matter of fact, oil and gold imports account for 35 percent and 11 percent of the trade respectively. According to traders, the oil importers have been pushing the deals recently and the rupee, as a result, has been pushed lower. The falling gold prices have set the government to make moves and reduce gold imports. It hence would increase the current financial deficit and make the currency drive on a recession.
The signs of a weakening economy and absence of a quick solution has led to development of an extra weight on the rupee. Even the foreign institutional investors had been driving index features for sale last weeks. Hence, the current recession, even though seems temporary, is going to affect the economy adversely in the long run. Even if the government steps to minimize subsidies, it has to face recession in the GDP. The current dollar-rupee scenario, hence seems to follow the recent trend of recession.