10 reasons why the rupee is sinking every day

1. Widening current account deficit:This is resulting in creating more actual as well as speculative demand for the dollar and other convertible currencies.
2.  Policy inaction: Perception of lack of clarity on the policy front is also fanning speculative demand wherein the Reserve Bank of India (RBI) on one day said it will tighten liquidity and on yet another said it will inject $1 billion in the market.
3. Low forex reserves: India’s foreign exchange reserves are enough to cover imports of only seven months. The forex reserves have declined in the recent months. Due to low reserves, the RBI can’t intervene aggressively in the currency markets.
4. Growth slowdown: India’s gross domestic product (GDP) growth fell to a decade low of 5 per cent in 2012-13. The situation is unlikely to improve much this year. Foreign investors are pulling money out of the Indian markets due to slow growth.
5. Dependence on foreign money: India’s current account deficit was financed by foreign money for the last many years. Withdrawal of money by overseas investors is leading to the weakness in the rupee.
6. Recovery in the US: The slow but steady recovery in the US is making the greenback stronger against other currencies.
7. Stimulus withdrawal: Indications that the US may withdraw or ease the fiscal stimulus package could potentially put the brakes on funds for developing economies.
8. Capital controls: The decision by the Reserve Bank and the government to impose temporary restrictions on capital flows has not gone down well with the markets, as it will not only discourage Indian companies from investing abroad, but also foreign firms from pumping money into India.
9. Trends in other markets: The rupee is also following the trend seen in the currencies of other emerging economies such as Brazil, Indonesia, Russia and South Africa.
10. Speculative trading: Speculative trading in the currency markets is putting further pressure on the Indian rupee.

Source: http://profit.ndtv.com/news/cheat-sheet/article-10-reasons-why-the-rupee-is-sinking-every-day-326160?pfrom=home-otherstories

Rupee’s fall: How it will impact common Man

Importers/Exporters

Importers will strongly feel the pinch of falling rupee as they will be forced to pay more rupees on importing products. Conversely, a feeble rupee will bring delight to the exporters as goods exported abroad will fetch dollars which in return will translate into more rupees. Also, a weak rupee will make Indian produce more competitive in global markets which will be fruitful for India’s exports.

Imported goods:

Buying imported stuff will become a very costly affair. You will have to shell out extra on imported goods. For instance if you bought a product valued USD 1, you paid around Rs 54 (weeks ago) but you will now have to shell out close to Rs 63 for the same product.

Fuel price:

A weak rupee will increase the burden of Oil Marketing Companies (OMCs) and this will surely be passed on to the consumers as the companies are allowed to do so following deregulation of petrol and partial deregulation of diesel. If the OMCs increase fuel prices, there will be a substantial increase in overall cost of transportation which will stoke up inflation.

RBI’s monetary policy:

If the depreciation in rupee continues, it will further increase inflation. In such a situation RBI will have very less room to cut policy rates. No cut in policy rate will add to the borrower’s woes who are eagerly waiting to get rid of the high loan regime.

Students studying abroad:

Students who are studying abroad will bear the brunt most owing to depreciating rupee. Expenses incurred towards the university/college fee as well as that of living will shoot up, thereby spelling a huge burden on the students.

Tourism: The depreciating rupee will surely be a dampener if you are planning your holiday abroad. Your travel charges as well as hotel charges will escalate drastically, let alone shopping and other miscellaneous spending activity.

Overseas Indians: Money saved is money earned. Depreciation of rupee is certainly a good news for the overseas Indians. Those working abroad can gain more on remitting money to their homeland.

Country’s fiscal health: A frail rupee will add fuel to the rising import bill of the country and thereby increasing its current account deficit (CAD). A widening CAD is bound to pose a threat to the growth of overall economy.

Source: http://zeenews.india.com/business/news/finance/rupees-free-fall-how-it-will-impact-you_82322.html