Rupee Depreciation

Subject – Economy

Context – FPI outflow, fears over US Fed taper pull Re below 76-mark

Concept –

Currency depreciation is a fall in the value of a currency in a floating exchange rate system.
In a floating exchange rate system, market forces (based on demand and supply of a currency) determine the value of a currency.
Rupee depreciation means that rupee has become less valuable with respect to dollar.
Some of the factors that influence the value of a currency:
- Inflation
- Interest rates
- Trade deficit
- Macroeconomic policies
- Equity market
Currency depreciation increases a country’s export activity as its products and services become cheaper to buy.
The RBI intervenes in the currency market to support the rupee as a weak domestic unit can increase a country’s import bill.

In News –

The rupee fell below the 76 per US dollar level as foreign fund outflows intensified following global strengthening of the US dollar ahead of the US Federal Reserve meet.
According to analysts, the rupee weakened as the dollar index surged after wholesale price in the US rose to record highs.
The rupee fall is expected to push up import costs while exporters may benefit from the dollar’s rise.
The rate hike could spur capital outflows from emerging markets like India and weigh on the local unit.