Rupee has depreciated by 25% since December 2014

19 Jul 2022 , 10:24 AM

The Indian rupee has dropped by almost 25% since December 31, 2014, and is now close to 80 versus the US dollar, according to information provided to the Lok Sabha on Monday. In response, Finance Minister Nirmala Sitharaman cited RBI statistics to state that the value of the rupee decreased from 63.33 to 79.41 versus the dollar from December 31, 2014, to July 11, 2022.

Finance Minister Nirmala Sitharaman stated in a written response that the Indian Rupee’s exchange rate to the US Dollar was Rs 78.94 per dollar as of June 30, 2022. Monday’s session saw the rupee close 16 paise down at 79.98 (provisional), as a result of soaring crude oil prices and persistent outflows of foreign funds.

The crisis between Russia and Ukraine, rising crude oil prices, and tighter global financial conditions are among the primary worldwide variables that have contributed to the depreciation of the Indian rupee versus the US dollar, according to her.

According to her, the Indian rupee has risen against these currencies in 2022 because they have declined more against the US dollar than the British pound, Japanese yen, or euro.

She said that monetary tightening in advanced countries, notably in the United States, tends to drive foreign investors to withdraw money from developing markets, which is one of the main causes of the devaluation of the Indian rupee.

She said that so far in 2022—2023, foreign portfolio investors have pulled out USD 14 billion from Indian equities markets. She explained that while the nominal exchange rate has an effect on an economy, it is only one among several.

A currency’s depreciation affects both imports and exports by increasing the cost of imports while also improving export competitiveness, which benefits the economy.

The Reserve Bank of India (RBI) keeps an eye on the foreign currency market often and steps in when there is too much volatility. Recent increases in interest rates make holding Indian rupees more enticing for both citizens and non-residents.

The RBI announced a number of steps earlier this month to increase foreign exchange inflows, including raising the limits on corporate overseas borrowing and loosening restrictions on foreign investment in government bonds.

The RBI relaxed rules for foreign portfolio investments in the debt market and increased the ECB limit through the automated route from USD 750 million or its equivalent per financial year to USD 1.5 billion.