The US dollar strengthened much more against other currencies compared to the Indian rupee

The US dollar strengthened much more against other currencies compared to the Indian rupee

New Delhi [India], July 16 (ANI): The extent of the decline in the value of the Indian rupee against the US dollar has been lower in 2022 compared to other major currencies. The US dollar index against six major currencies – the euro, the British pound, the Japanese yen, the Swiss franc, the Canadian dollar and the Swedish krona – has risen 13.0 percent this year.

Therefore, the strength of the US dollar against the Indian rupee cannot be seen as an isolated event.

The Indian currency rupee has witnessed a steady and consistent depreciation against the US dollar with several record lows in 2022. The value of the rupee depreciated by about 6-7 percent this year.

When interest rates were low and the supply of dollars was plentiful, investors took risks and invested in the stock markets of emerging economies, including India. Indian stock markets have seen beautiful upswings in 2020 and 2021 due to a strong risk appetite among foreign investors.

As the inflation rate began to rise in the developed world, including in the United States in the second half of 2021, the respective central banks began to talk about responding to high inflation by raising interest rates.

Then came the conflict in Ukraine in February, which raised crude oil prices and demand for additional dollars. The war has led to further economic uncertainty. Due to these factors, foreign investors became cautious and started withdrawing money from emerging markets like India.

Foreign investors have pulled out nearly $ 31.5 billion since the beginning of 2021-2022.

Foreign portfolio investors usually prefer advanced economies in times of strong volatility and uncertainty in the overall financial markets.

The best thing this time is that the appreciation of the US dollar was much less than during the “taper tantrum” in 2013, the global financial crisis in 2008 and the Asian financial crisis in 1997-98.

Although the strength of the US dollar against the Indian rupee has been fairly mild this time around, the Indian government and the Central Bank Reserve Bank of India have taken steps to attract dollar inflows to make the appreciation of the dollar against the Indian rupee more gradual and smoother.

Usually, RBI intervenes in the market through liquidity management, including through the sale of dollars, in order to prevent a sharp depreciation of the rupee.

To reduce dollar dominance, the RBI announced earlier this week a mechanism to regulate payments for international trade in rupees, particularly the country’s exports.

Banks are also allowed to offer higher interest rates on new foreign currency from foreign banks and external deposits than those on comparable domestic maturities during the period up to 31 October 202.2 in order to attract more such deposits.

Furthermore, in early July, the government introduced an unexpected tax on domestic crude oil producers, imposing export duties on petrol, diesel and jet fuel, in addition to raising import duties on gold in an attempt to reduce the pressure on rupees. (ANI)


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