![]() Hamstrung supply chains, a dreaded recurrence of another COVID-19 wave and the monetary tightening by the US are all collectively contributing to an inflationary cycle in foodgrains and energy commodities. This is not such a far-fetched scenario, considering the explosive spurt of crude oil and energy prices that has been witnessed in the aftermath of the Russia-Ukraine war. Our current account deficit, which essentially measures the gap between the value of goods and services imported and the value of the goods and services exported, has been widening.Īs per an S&P Global Ratings April report, it could widen to as much as 5% of the GDP if the global crude oil prices touch $150 a barrel. The catch here is that the Indian economy, on the whole, runs a trade deficit, which is to say that our exports exceed our imports. Alternatively, the higher our exports, the higher the demand for the Indian rupee which helps it appreciate in value against the US dollar. The greater our imports, the greater is the demand for the US dollar, which consequently ratchets up the price of the dollar against the rupee. Right now, the exporter receives Rs 775.9 or 760.Įvery time the Indian government or companies or firms or other organisations import goods, they need to buy US dollars and sell Indian rupees. Contrast this with the current situation, when the rupee is at the level of 77.59 and it will cost the Indian customer Rs 775.9 or Rs 776.Īlternatively, an Indian exporter would have received Rs 720 for a product priced at $10 when the Indian currency was at Rs 72. For an Indian customer, the total cost for importing the goods when the Indian currency is trending at Rs 72 against the dollar will be Rs 720. So, for instance, assume that a product costs $10. Meanwhile, when the rupee depreciates our exports receive better consideration, and when our currency appreciates, our exports are dampened. When the value of the rupee depreciates against the dollar, imports become expensive. What is the relevance of the exchange rate?Ī mantra to remember when looking at the exchange rate is that when the value of the rupee appreciates against the dollar, imports become cheaper. The question is, for how long can the Modi government continue putting up a brave face if this economic pain persists? Reality seems to have come full circle, with the very criticisms voiced by him now being levelled against him. In numerous videos, the then chief minister of Gujarat can be seen taking the UPA government to task for its failure in preventing the fall of the Indian currency from the Rs 64 a dollar level. The situation is bad enough that the Indian government had to step in and implore the RBI to undertake a bond purchase programme, if only to moderate the rising bond yields.Īlso read: Raging Inflation: Why Your Chicken Curry Is the Most Expensive it Has Been in 5 YearsĪmidst this seemingly all-pervading economic rout, the debate over plummeting rupee levels has now started spilling into the mainstream political conversation and Indian Twitter seems to be abuzz with Prime Minister Narendra Modi’s earlier criticism of the UPA government. It is not all hunky-dory either for the Indian 10-year benchmark bond, which on Monday was trading at Rs 93.69 for a yield of 7.46% after it touched a record yield of 7.49%. ![]() ![]() Look at the last 30 days, and the collapse is 10% with no immediate relief in sight. In this week alone, the equity bourses have collapsed by around 4%. Meanwhile, rising US treasury bond yields – reaching as high as 3% – have triggered an exodus of foreign funds, which explains why portfolios of Indian retail investors are splashed in red. In the US, retail inflation for the month of April pencilled in at 8.3%, signalling that the US Federal Reserve will not hold back from pushing ahead on an even more aggressive rate hike. Global macroeconomic signals don’t bode well either, leaving little room for optimism in the near future. And it is pouring for the Indian rupee, which hit a fresh record low of Rs 77.59 against the US dollar this week.
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