Friday, June 28, 2013

Why Dollar Value is Increasing Daily.

Dollar after being stable for a long time now is climbing back up against the rupee. What do you think? Is it the right time that politician's money from Swiss banks should be taken out or will it be really late for us? Or we start depending on our own oil resources and stop importing the yellow metal from outside?

What is the current rate of dollar today?

1 US dollar = 59.27 Indian rupees.

The oil minister is going to raise petrol prices by the third quarter of this year as rupee is down again. RBI is always trying to protect rupee by selling off dollars but still has been unable to hold rupee from falling at a rapid pace. Due to rise in dollar, gold prices have slashed down. The last resort of controlling rupee fall is issuing bonds by Reserve Bank of India. To prevent further downfall of Indian rupee, RBI is considering selling dollars directly to oil marketing firms.

Now let's look into why dollar is appreciating heavily against rupee.

Recession is less in India, then why dollar is moving up when rupee must be strong.

We all know about recession and it is worse in US and better in India as compared to US, then how come dollar is appreciating with respect to Indian rupee? Don't you think that Indian rupee should go up and US dollar should move down?

Rupee 50 note INR
Source: soni2006 copyright 2012

Dollar up and rupee down why rupee 100 note - Indian currency
Source: soni2006 copyright 2012

Bloomberg's inverted scale of rise and fall in rupee and dollar.
Source: Bloomberg

Petrol prices will go high - expect 100 rupees per liter in one year - driving will be costlier than ever.
Source: soni2006 copyright 2012

Vehicles moving at a market near Candolim beach in Goa.
Source: soni2006 copyright 2012
There are so many reasons of depreciating rupee, but I would like to explain the first one, which is most important.

Why dollar is moving up and rupee is going down? There has been a recent fall in rupee since some days ago and a dramatic increase in dollar. It was 49.50, then 50.12, 51.10, 52.60, 53.54, 54.40 and stable, and now according to google search of "1 US dollar to INR":

1 US dollar = 59.27 Indian rupees.

Why is this happening?

First Reason - Dollar is in Demand

BRIC countries like India have emerging economy, so a huge percentage of investment in India is from outside the country, especially from US but due to recession in US, big institutions are collapsing and many of them are on the verge of breakdown. They are suffering huge losses in their country. They have to maintain their balance sheets and look strong on all statements, so to recover losses in their country, they are pulling out their investments from India. Due to this pulling out of investment by these big companies from India or in other terms disinvestment, demand of dollar is raising up and rupee is depreciating.

There was a huge interest rate differential between India and US. Now RBI is reducing all kind of rates to increase money supply in market, so deposit rates will also move downwards. It will reduce the rate differential between two countries and affect the fixed investment in India in a negative manner.

Second reason - Collapse of International Trade

If you observe in terms of international trade, commodity prices are crashing at international level.

Importers are trying to accumulate dollars, as they have to pay in terms of dollars and at the end demand is increasing against the rupee. This has not happened yet due to lack of confidence in all kind of markets.

Exporters have a very few orders from outside countries, so there is no matter of converting dollar into rupee thereby decreasing demand for rupee.

Besides the above-mentioned two reasons, there are many other reasons, which I would like share in the comments section below with you and others.

Now 1 USD is at 59.27 INR and rupee is expected to depreciate further due to RBI instructions to exporters and banks. The major gainers due to rupee down were Indian IT companies including BPOs, call center outsourcing, medical transcription outsourcing, and Indian content writers, especially Indian Adsense publishers who also earn in dollars from United States of America.

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