- December 16, 2021
- Posted by: OptimizeIAS Team
- Category: DPN Topics
Subject – Economy
Context – FPI outflow, fears over US Fed taper pull Re below 76-mark
- 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:
- 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.