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tsbinu24

tsbinu24 (Querist)
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29 December 2011 why rupee fall and causes please explain

RAMESH KUMAR VERMA

RAMESH KUMAR VERMA (Expert)
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30 December 2011 Today the position of Rupees is very low since past which is directly effecting ot our Insdustrial Production. The following points are involve in fall down the rate of Rupee to Dollar :-

(a) Increasing the rate of Interest by RBI.
(b) Low importing.
(c) Non changing of policy for import/export.
(d) Withdrawn the invested Dollar from Indian market.

actually BRIC countries like India have emerging economy, so a huge percentage of investment in India is from outside the country, especially from US but due to recession in US, big institutions are collapsing and many of them are on the verge of breakdown. They are suffering huge losses in their country. They have to maintain their balance sheets and look strong on all statements, so to recover losses in their country, they are pulling out their investments from India. Due to this pulling out of investment by these big companies from India or in other terms disinvestment, demand of dollar is raising up and rupee is depreciating.
There was a huge interest rate differential between India and US. Now RBI is reducing all kind of rates to increase money supply in market, so deposit rates will also move downwards. It will reduce the rate differential between two countries and affect the fixed investment in India in a negative manner.
Second reason - Collapse of International Trade
If you observe in terms of international trade, commodity prices are crashing at international level.
Importers are trying to accumulate dollars, as they have to pay in terms of dollars and at the end demand is increasing against the rupee. This has not happened yet due to lack of confidence in all kind of markets.
Exporters have a very few orders from outside countries, so there is no matter of converting dollar into rupee thereby decreasing demand for rupee.

Regards,