The Rupee has tumbled by almost 13% against the US dollar in 2018 and it still stands on weak grounds. It was weighed down by the global rise in crude oil prices as India imports nearly 80 per cent of its fuel needs. Moreover, the US dollar has been performing quite well because of the rapid economic growth which further creates trouble for the currency.
On Wednesday, September 12, the rupee scaled down to as low as 72.92 against the US dollar which makes it one of Asia’s worst performing currencies. The effects of this is a widening current account deficit due to rising import bills. The already weak jewellery sector is expected to be hit harder.
The depreciating rupee also effects the economy as it has the power to increase domestic inflation and the already high crude oil prices will escalate even more.
The short term solution to this is intervention by RBI. However, in the long run the best way to protect the currency from external shocks is by reducing dependence on imports and attracting foreign direct investment through friendly foreign policies.
On 14th September, a meeting was held where PM Modi and top finance ministry officials reviewed the country’s economic situation. It has been decided that steps will be taken to cut down on imports of non essential items and improve exports along with easing out overseas borrowing norms and removing restrictions on portfolio investments. These decisions are expected to bring a stream of capital inflows which will help the rupee to strengthen by catering to the dollar liquidity shortage.The currency got a little respite on Friday due to the Government's intervention and rose over 1% to close at 71.85 .
Written by:-
AARUSHI BHUTANI
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