Table of Contents
What is the reason for INR depreciation?
So in short inflation is the major reason for the depreciation of the rupee to the dollar, followed by Oil bills and trade deficits (nagging current and capital account deficits) have kept the pressure on the rupee against its major trading partners currencies.
What is depreciation of rupee What is its likely impact on Indian imports and how?
When exchange rate rises the value of domestic currency rupee in case of India falls. It is Depreciation of Rupee.It makes imports costly because to import one unit of foreign currency worth of goods and services the domestic purchasers have to pay with more rupees. Since imports become costly imports fall.
Does INR depreciate long term?
The Indian rupee has had a stable run this year, but UBS expects it will be ‘short-lived’ UBS strategists expect the Indian currency to weaken to 77 per dollar by the end of the year — more than 5\% weaker than current levels — and depreciate further to 79.5 by September 2022.
How does depreciation of rupee lead to inflation?
Reduced demand for Indian debt products, will depress their prices, causing domestic yields to increase. In a rising inflationary environment, labour will demand higher wages. This could lead to greater automation of production processes to cut costs.
What happens when rupee depreciates?
Rupee depreciation means that rupee has become less valuable with respect to dollar. It means that the rupee is now weaker than what it used to be earlier. 70, now USD 1 is equal to Rs. 76, implying that the rupee has depreciated relative to the dollar i.e. it takes more rupees to purchase a dollar.
How the value of Indian rupee is determined?
The value of a currency, just like any other commodity, is determined by supply and demand. Similarly, if the rupee was appreciating with respect to the dollar, then to maintain the peg (fixed exchange rate) RBI would sell the rupee to buy US dollar to bring down its value.