Understanding the historical fall of rupee

Understanding the historical fall of India Rupee!
– by Dharmesh Patel

How global (Western economic policies) are and will influence the future of developing countries!

What lead to the changes in rupee value?

Indian economy, like any other, is very much dominated by political forces and so, the government is under a great pressure now to improve the economic enviornment as general elections approaching next year. However, before that it is very much necessary to understand how such scenario emerged?

As Fed chairman, Ben Bernanke, announced that Fed to cutback on its Quantitative Easing policy rupee along with many other asian currencies started plummeting. However, India’s currency is the worst performing currency losing over 19% of its value in this year. The Fed will start tampering its QE this year and may halt entirely by the middle of 2014, if the economy and job market continues to improve. This announcement to stop QE reversed these investment flows and many Asian currencies such as India’s rupee, Indonesia’s rupiah and Thai baht depreciated due to increase in BOP deficit.

Officials from Fed thinks, the economy is strong enough to warrant an interest-rate rise and phasing out of the Fed’s economic stimulus program. The implication is that if this happens, with rise in interest-rate, foreign funds that have been moving to emerging markets looking for better returns will return to the United States once interest-rate increases. Low outflow of foreign funds from USA means low-inflow of foreign monies to emerging markets, including of India, which would pressure the balance of payments and in turn the domestic currency. This is a point that Indian government has been emphasizing, that rupee’s fall is part of a global phenomenon and so there is no reason to worry as things will settle down eventually. Is it so? Shouldn’t we worry?

The current problem of India is not like Asian Financial Crisis but it’s a matter of losing an opportunity, rather than being hit by incredible debt that you can’t pay. Due to India’s rigid policies many companies don’t consider India for Investment, aggregating with the problem of corruption and scandals, it might become a nightmare for many MNC’s. All in all, rigid and contradicting policies of India have contributed a lot in aggravating this situation, which calls for fundamental reform issue.

Dharmesh Patel

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Introduction

The world is witnessing the making of new history in Indian forex market. Rupee fell to record low 64.13 Rs. per USD then 64.47 Rs. per USD , then to 66.23, which collapsed to 68.85 Rs. per USD, recording new life-time low each time. Lets look at the fundamental and sentimental factors that made the rupee fall.

What lead to the changes in rupee value?

 Indian economy, like any other, is very much dominated by political forces and so, the government is under a great pressure now to improve the economic enviornment as general elections approaching next year. However, before that it is very much necessary to understand how such scenario emerged? Given below are the major reasons, which I believe had hurt the Indian forex-market.

 i. Scale back of unconventional monetary policy of FED (Fundamental)

 As Fed chairman, Ben Bernanke, announced that Fed to cutback on its Quantitative…

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