The Rupee: An Unholy Dip

The Rupee

- M.G. Arun

A weak currency need not necessarily reflect a weak economy, but it does indicate underlying issues that, if unaddressed, can do it harm. In that sense, the slide of the rupee ever since the start of the Russian invasion of Ukraine in February is worrisome. From 75.4 to a dollar on February 24, the day Russian troops advanced into Ukraine, the rupee slid to 79.14 to a dollar, its lowest ever, on July 5. Since the beginning of the calendar year, the rupee has fallen 6.2 percent against the dollar. Going by the way the rupee has been falling, it will certainly go up to 80 to a dollar, 'says. Jamal Mecklai, CEO of Mecklai Financial Services. But he can't predict exactly when, since that result is subject to market forces and the course of the war, inflation, and crude oil prices.

A key reason for the weak rupee has been the strengthening of the dollar against all major currencies. On June 15, the US Federal Reserve hiked interest rates by 75 basis points, the biggest increase since 1994, signaling a shift from a low-interest rate regime to higher rates in a bid to contain rising inflation. Higher interest rates become an attractive proposition for investors seeking higher returns on bonds. Such global investors sell their investments in local currencies elsewhere in exchange for dollar investments, strengthening the American currency.