The Indian currency recently dropped to a low of Rs. 80 against the US dollar. Since the Rupee is touching new record lows, there has been a constant worry that it can fall even more. The US dollar is strengthening against currencies of other countries as well. Despite the Rupee is a stable currency, it has further chances to depreciate in the coming days. In this article, we list 5 reasons why the INR may depreciate further against the US Dollar.
• Investors Investing in Safer Haven
With the war between Russia and Ukraine, the investors are preferring to shift towards safer countries like the US. The US is considered a stable market for investors and with its dollar supremacy, the value of the dollar does not require any defence. Due to the uncertainty prevailing across the globe, investors have moved toward the US increasing the chance of a further fall in INR.
• Higher Rate of Return in the US
Even after several measures taken by the Reserve Bank of India (RBI) the rate of returns in US bonds yields is more in comparison to investment instruments in India. The investors now intend to invest less in India due to lower returns leading to further depreciation in the Rupee against the USD.
• Rate Hike by US Fed
Due to inflation, the Federal Reserve is expected to hike the rates aggressively by 75 bps or even more in the upcoming meet. This has lent more strength to the dollar. Furthermore, the increasing risk of global recession has contributed to the strengthening dollar. This status is expected to remain the same in the coming days and create further pressure on Indian Rupee.
• Inflation
The borrowed inflation due to the Russia-Ukraine war is also one of the reasons for our currency depreciation. With the growing prices of oil and other commodities due to war, India is hit with inflation despite taking several measures. This has further led to a weakening of the Indian Rupee against the US dollar.
• Stability of INR
INR is one of the most stable currencies across the globe. Despite hitting record lows it has performed better than other global currencies. This stability further adds room for depreciation. Since the rupee is still strong in comparison to other currencies, the chances of weakening it further are still higher.
The above-mentioned are some of the reasons why INR may further depreciate against the US Dollar. The fall in INR has its effects on the stock market too. Many financial experts believe that the worst is behind us and India will outperform the world.