“For the economy, rupee devaluation means imports become dearer and inflation too is impacted. On an individual level, travel and education becomes dearer," said Madan Sabnavis, chief economist at CARE Ratings Ltd. “With the attack on oil in Saudi, I think rupee will continue to be hit until further clarity emerges," he added.
Here are four risks the falling rupee poses for you and the measures you should take to cushion yourself against these.
Though most students plan their foreign education well in advance, a sudden depreciation of the rupee could impact students and their sponsors. A drop in rupee means the student will have to shell out more rupees for every dollar. So if one spent ₹65 per dollar in 2017, he or she will now have to spend ₹71.5, which is a significant increase. This drop in the rupee value could affect over 210,000 Indian students studying in the US.
According to the Reserve Bank of India (RBI), spending on tuition and hostel fees by Indian students studying abroad shot up 44% from $1.9 billion in 2013-14 to $2.8 billion in 2017-18. “Steady depreciation of rupee is badly hurting Indian students studying abroad, especially in countries like USA where the cost of living for students apart from tuition fees can be as high as $600-800 per month, depending on the location," said Vinay Bagri, co-founder and chief executive officer, NiYO, a digital banking solutions provider offering global travel cards.
Sanjeev Kumar Acharya, career counsellor at Admissionnews.com, an education counselling platform, said he’s seen multiple cases where students don’t take into account currency fluctuations and are broke after a couple of years into the course. One of his clients who did his bachelors in engineering at the University of Warwick in the UK made the same mistake. “He did not take into account the rupee depreciation against the pound; so by the third year, he didn’t have enough to continue further education," said Acharya. The student had to return to India after his third year because he ran out of funding. The same would apply if you’re studying in the US as well, he added.
Bagri said students also need to factor in seasonality in forex exchange rate fluctuations. “Since 2001, with the exception of 2016, 2010 and 2002, the rupee tends to weaken against the US dollar during the July-September quarter when students are buying dollars to fund their studies and then strengthens in the subsequent quarters. So students may stagger purchasing their forex requirements instead of purchasing forex for the whole year right now," said Bagri.
Financial planners Mint spoke to said one of the biggest mistakes people make while planning for an overseas education is ignoring inflation. For students who are already abroad, there’s very little room to make any changes but people who are planning to go should take notice.
“Parents or guardians should ideally transfer money for expenses every quarter rather than sending it all at once so they can average out the price. Hedging currency for education-related expenses is also a good idea," said Shweta Jain, certified financial planner, chief executive officer and founder, Investography Pvt. Ltd. If the expenses are known in advance, you can buy the rupee-US dollar futures contract and match the expiry date to the date when money is needed, she added.
Lovaii Navlakhi, founder and chief executive officer, International Money Matters Pvt. Ltd said depending on the time horizon, you can invest in equity schemes or you could open an account and save in a liberalised remittance scheme (LRS) and transfer money in the foreign currency, when required. If you’re unsure about how futures and LRS work, it’s best to consult a financial expert.
With the festive holiday season around the corner, taking a holiday abroad may have been on your mind. If you’ve already planned a holiday in the US, the rupee depreciation would mean shelling out more at those restaurants, train rides, shopping and so on. If you are running on a tight budget, you’ll have to make some adjustments such as cancelling a couple of destinations or limiting your shopping. People who are still in the planning stage may want to consider alternative destinations, where the rupee has an upper hand (check Mint’s Globetrotter Index to know more: www.livemint.com/globetrotter2019).
“One should also carefully choose a payment option while travelling abroad, as carrying cash obtained from money exchangers and paying through bank debit or credit cards can entail a forex mark-up and hidden charges of 3-4%," said Bagri. Also, remember that your credit card repayments would be made in rupees. If there has been a depreciation between when you actually spent the money and the time when you are making your repayments, then you may end up repaying more.
In order to avoid overspending, you could consider opting for prepaid forex cards which are new entrants in the travel currency market. These cards allow you to withdraw cash in foreign currency when you are travelling abroad. They are a type of pre-paid debit cards. “They are pre-loaded, so you can transfer the required amount of foreign currencies in India by paying in Indian rupees. You can then use these cards while abroad for everything from paying your taxi bill to shopping, as well as use them to withdraw cash from local ATMs," said Adhil Shetty, chief executive officer, Bankbazaar, a financial services marketplace. Shetty said these cards are a good hedge against currency fluctuations which will help save on expenses if the foreign currency’s value increases against the rupee.
Rupee depreciation usually results in rising fuel prices as India depends on imports for crude oil and a drop in rupee value makes imports expensive. Global oil prices play a role in determining fuel prices. After the attack on Saudi’s oil facilities, as feared, fuel prices increased in India on Tuesday. The price of petrol went up by 18 paise and diesel shot up by 33 paise (read here: bit.ly/2mdmNgu). A continued slump in the value of the rupee means fuel prices are likely to go up, making your commute and everyday activities expensive. If you set a budget on how much you spend on fuel every month, you may have to readjust that now.
Inflation and rates
The rise in fuel prices typically has a direct impact on prices of everyday consumption items, be it manufactured goods or agricultural products. Rising fuel cost could result in an increase in the price of everyday essentials such as milk, eggs, fruits and vegetables.
However, the government in its recent announcement said that the inflation level at 3.21% was in line with the projection so there may not be a spike in inflation this time around. “Currency depreciation tends to cause inflation as imports become more expensive. However, the inflation in India is currently on track and remains under RBI’s medium-term target of 4%. So, this depreciation is not likely to have much impact in terms of interest rates going up," said Shetty.
Though currency exchange rates usually come into the picture for international transactions, continued depreciation can have an impact domestically as well. Navlakhi said investors must look at assets that can help them hedge against inflation.