Rupee falls below 80 against dollar, raises worries over imported inflation
- Rupee breached 80 level versus dollar for the first time as crude oil prices rose in the international market.
Why are Dollars & rubles winners of Ukraine war?
- Value of the rouble increased: Russia demanded to be paid in its own currency instead of euros or dollars, to sidestep western sanctions.
- Dollar gained: Europe was forced to shop for oil markets that demanded US currency.
- To fight domestic inflation US Fed’s higher interest rates triggered mass departure of investments to America.
- It increased the value of dollar further.
Effect on rich world’s currencies
- In July, Japanese yen hit a 24-year low and euro fell to its lowest point in the past 20 years.
- Indian rupee grew stronger against many rich world currencies.
- Depreciated against Chinese yuan, Brazilian Real and rouble.
- US dollar appreciated against all currencies
- It is the currency in which most international transactions are done
- Bulk of foreign reserves maintained by most currencies.
- IMF’s estimate: US dollar constitutes about 55% of global forex reserves.
What is being done by RBI?
- It liberalised norms to boost inflows of foreign exchange
- Doubling borrowing limit under External Commercial Borrowing (ECB) route.
Way ahead
- RBI should focus on containing inflation
- Government should contain its borrowings.
- Higher borrowings by government eat up domestic savings and force rest of the economic agents to borrow from abroad.
Prelims Take Away
- ECB
- RBI
- IMF
- Inflation
- Depreciation