Lately when rupee is compared to American dollar depreciation in rupee is not only seen in India, but also other financially developing countries like Brazil( Brazilian Real), Argentina(Peso), Russia(Rubel), South Africa(Rand) depreciated. Comparison from 2011 August rupee value fluctuations had started.
Presently in unstable financial environment, Euro Zone countries (sovereign debt) loans induced dollar as safe asset which provoked this condition. Current account depreciation is heightened due to comparison to exports, imports are undervalued. Vast oil prices, gold exports caused high import prices.
Due to absence of higher current account, foreign exchange liquid market exerted determent environment. This situation increased downward pressure of currency.
Official cash reserves fluctuations reasoned for increase in deficit of current account. When compared dollar rupee value is on 2 May 2013 Rs.53.7, 1 June Rs.56.6, 11 June 58.9.Shortly (2 May to 11 June) rupee lost 10 percent of its value.
In situation of rupee depreciation toku rates are under control only repo rate subsiding is ceased by reserve bank. Rupee value depreciation effect is more on industries. Oil, coal export, metals, minerals industries production costs are raised. Due to present conditions foreign organizations investors (FDI) withdrawn 4.2 billion dollars investments. This expedited Indian bond market triggering disruption.
Importance in Solving Deficit
Prolonged value of rupee deficit ensued worry. Deficit in rupee resulted in hiked import prices. Increase in oil demand and increased import prices. Along with oil other metals and gold imports prices hiked causing inflation in country. Though oil, gold prices decreased in international market it not much advantageous to customers. Structurally India is Import based.Deficit in rupee pressurizing inflation rate in country. Heightened current account depreciation conditions are observed. Fluctuations causing foreign investors to distrust in investing.
Opinion of Analysts
Incidents happened recently in America influenced official cash reserves opinionated by Analysts. It is viewed by him as in America prolonged interest rates increase influenced foreign investors loans.
This situation effected along with India many fast developing countries. Corresponding organizations like government, Reserve Bank, Sebi are carefully observing everything to take necessary action at appropriate time. Pessimistic attitude is not substantial here , heightened current account depreciation can be restrained. Decrease in gold exports in June is beneficial financially, depreciation of rupee can be lowered and in brief time investors will congratulate Indian financial system.
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