Falling rupee is bad news for you: Here’s why
A falling rupee is bad news for everyone, from companies to individuals to those on the Dalal Street. Five takeaways
New Delhi: The rupee on Tuesday erased all morning gains and crossed past the psychological 70 mark against the US dollar for the first time as the contagion from the economic crisis in Turkey remained relatively contained in developed markets overnight. At 10.34am, the rupee was trading at 70.08 a dollar, down 0.21%, from its previous close of 68.93. The home currency opened at 69.84 and touched a high of 69.75 and a low of 70.08 a dollar. A falling rupee is bad news for everyone. Here’s why.
A falling rupee makes imported goods costlier, especially oil, since India imports around 80% of its crude oil requirements. Retail prices of petrol and diesel increase, consumer goods using imported raw materials become costlier, vegetables will become dearer, which could push up inflation.
If you are planning an overseas holiday, wait for the rupee to stabilise a little more. At the current exchange rate, you will end up spending more to buy foreign exchange, which would tighten your travel purse strings substantially.
A falling rupee is generally bad news for the market. Export-oriented stocks such as IT and pharma gain as their earnings go up in dollar terms, while oil marketing companies and consumer goods firms, heavily dependent on imports, find themselves at the receiving end. Bears overpower bulls, and markets take a hit.
PROBLEMS FOR RBI
The Reserve Bank of India (RBI) has been struggling to contain inflation. In its last policy review, the central bank hiked its repo rate, or key lending rate, by 25 basis points. If inflation remains on the higher side, it could compel the RBI to keep policy rates high for a longer time.
BUT THERE’S A SILVER LINING
Exporters earn more in dollars, which pushes up their revenues. Information technology companies, with a high proportion of overseas clients, are generally among the biggest beneficiaries. IT stocks gained on Monday, with the NSE IT index up 0.70% in afternoon trade. Tech Mahindra and HCL Tech were among the top gainers.