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There are some questions that need answer; why is the Rupee depreciating? What does it means to common man? What should be done to control it?
Depreciation is used to describe ‘decrease in currency's value’ (relative to other major currencies) due to market forces, not by government or central bank policy actions'. Depreciation means that if at some time in the past, we could have bought 1 Dollar for say Rs.55; we would now have to pay more. And today, this figure has 'breached' Rs 60 mark. The rupees, in recent times, have not only depreciated against dollar but also against the entire major currencies i.e. Pound for Rs.90 & Euro for Rs.78.
'Market forces' basically are the twin forces of demand and supply, and as economics says, if the demand of any good or services is higher relative to its supply, it becomes dearer or costly. Exactly the same holds true for inter-nation currencies as well.
Some of the most prominent market events which have weakened the position of rupee relative to the other benchmark currencies are:
Rise in Current Account Deficit, where country's imports are more than its exports. And, to pay our import bills, we have to buy dollars, which drives up the demand for dollars and consequently, lowers the value of Rupee.
Inflation is one of the most crucial factors in determining the currency exchange rate. India is experiencing very high inflation rate nowadays. This will decrease the purchasing power against other currencies.
Due to recession in Euro Zone Investors are selling Euros and buying Dollars which resulted in high demand for dollars and thereby its price.
Effects:
Value of imported items will increase.
Depletion in forex reserves.
Borrowing cost for the companies will increase.
Studying and travel abroad will cost more.
Measures to control:
Allowing sovereign wealth funds, endowment funds and foreign central banks to invest in government bonds.
Boost the slowing industrial growth.
Export more incentives and reduce
Depreciation is used to describe ‘decrease in currency's value’ (relative to other major currencies) due to market forces, not by government or central bank policy actions'. Depreciation means that if at some time in the past, we could have bought 1 Dollar for say Rs.55; we would now have to pay more. And today, this figure has 'breached' Rs 60 mark. The rupees, in recent times, have not only depreciated against dollar but also against the entire major currencies i.e. Pound for Rs.90 & Euro for Rs.78.
'Market forces' basically are the twin forces of demand and supply, and as economics says, if the demand of any good or services is higher relative to its supply, it becomes dearer or costly. Exactly the same holds true for inter-nation currencies as well.
Some of the most prominent market events which have weakened the position of rupee relative to the other benchmark currencies are:
Rise in Current Account Deficit, where country's imports are more than its exports. And, to pay our import bills, we have to buy dollars, which drives up the demand for dollars and consequently, lowers the value of Rupee.
Inflation is one of the most crucial factors in determining the currency exchange rate. India is experiencing very high inflation rate nowadays. This will decrease the purchasing power against other currencies.
Due to recession in Euro Zone Investors are selling Euros and buying Dollars which resulted in high demand for dollars and thereby its price.
Effects:
Value of imported items will increase.
Depletion in forex reserves.
Borrowing cost for the companies will increase.
Studying and travel abroad will cost more.
Measures to control:
Allowing sovereign wealth funds, endowment funds and foreign central banks to invest in government bonds.
Boost the slowing industrial growth.
Export more incentives and reduce