Up, Up & Away

1947 1952 1966 1975 1980 1985 1990 1995 2000 2006 2007 2008 2008 2009 2010 2011 2011 2011 2012 2012 2013 2013 2013 20130

10

20

30

40

50

60

70

14.75

7.5510.409

7.887

12.369

17.504

32.427

4548.336

38.4842.51

48.8846.37 46.21

44.17

48.24

55.39556.25 57.1554.73

58.560.73

Rs Vs $

July 2013, 1$= Rs 61.21

What?

Price of a currency in respect to other country’s currency is called as exchange rate.

If a demand for a currency rises, its price rises and it is called as appreciation

If the demand of other country’s currency increases, the home currency’s price falls and it is called as depreciation.

Why Not ?

Leads to imports becoming costlier

which is a worry for India as we meets

most of our oil demand via imports.

Apart from oil, prices of other

imported commodities like metals, gold etc.

will also rise pushing overall inflation higher.

Exchange rate risk also drives away foreign investors

which in turn depreciates the local

currency.

The total external debt has increased

by Rs. 2186.8 billion to Rs

16384.9 billion by the end of

November 2011.

WHY?

Global uncertainty

Europe & International Market slump

Credit Downgrade

Current Account Deficit

India continues to see current account deficit of around 4.3%, depleting the forex reserve and thus depreciating INR

Interest Rate Difference

Higher real interest rates generally attract foreign investment but due to slowdown in growth there is increasing pressure on RBI to decrease the policy rates.

Lack of reforms

Current back out from POSCO & Arcelor Mittal Plant

Affect• Only exporters will be

happy like IT companies.• Importers will feel the

heat

Importers/Exporters

• CAD will grow more which in turn force the Indian govt. to go for international borrowings

Country’s fiscal health

• 3 rd Highest importer of crude oil. Increase in fuel prices after the new policy.

Fuel price

• RBI won’t cut policy rates which will affect the growth & keep the investors on toes.

RBI’s monetary policy- Inflation

• Expenses incurred towards the university/college fee as well as that of living will shoot up.

Students studying abroad

• The depreciating rupee will surely be a dampener if planning holiday abroad.

Tourism

HOW?

Measures By RBI

Using Forex Reserves- RBI can sell forex reserves and buy Indian Rupees leading to demand for rupee.

Raising Interest Rates-  To prevent sudden capital outflows and ultimately lead to higher capital inflows

Make Investments Attractive- RBI can increase the FII limit on investment in government and corporate debt instruments.

Measures by Government:

Government should take some measures to bring FDI and create a healthy environment for economic growth. 

Opinion?

A depreciating rupee is an opportunity or weakness ?

Thank You