In particular, India has a higher inflation rate than its international competitors. Therefore, there is relatively less demand for the rising price of Indian goods; this reduction in demand causes a fall in the value of the Rupee. A consequence of poor competitiveness and high demand for imports is a current account deficit.
This means India is purchasing more imports of goods and services than it is exporting.
The article talks about the reasons why rupee has been depreciating in value, the impact of falling value of rupee on inflation and other economic factors and ways in which the current slide can be attested.
Since the falling value of rupee, and rising oil prices have been dominating the news headlines for some time now, getting into the depth of reasons behind the same would be useful for mains.
Some of the other factors that influence the value of rupee: 1. If RBI wishes to prop up rupee value, then it can sell dollar and when it needs to bring down rupee value, it can buy dollars.
The central bank can also influence the value of rupee by the way of monetary policy.
Similarly, lower interest rates tend to decrease exchange rates.
RBI can raise the repo rate, which leads to a rise in interest rates, bond yields and return on debt papers, drawing more investor money to chase better returns if the same is low in other markets.
NEW DELHI: Cattle, cocoa, salt, cloth, tobacco & even cigarettes have served as medium of exchange for goods and services. When the currency market is so much in turmoil, it’s a good opportunity to look back and ask what money really does?
In the simplest of terms, money is a store of value used to purchase goods and services and which can be saved and used later.