#22: Depreciation of Rupee | Explained
What does it mean and implications for UPSC?
Rupee breached historic mark of ₹82 against USD. What is depreciation of rupee and what its macroeconomic implications? This explainer has been contributed by @Conquerias24
Depreciation, what?
Fall (or rise) in value of one currency wrt the other is known as depreciation (or appreciation)
eg:
$1 = ₹82 from ₹80 is depreciation
$1 = ₹78 from ₹80 is appreciation
Factors behind depreciation/appreciation?
Demand & Supply depends on factors like
- Economic fundamentals
- Monetary policy
- Inflation rate
- Political Instability
What is causing the fresh depreciation?
4 major reasons:
- Sharp increase in oil prices: This increase demandsinceIndiaimports80−Ukraine−Russiaconflict:Supplyshortageleadingtohigherimportpricesandthus,demandfor
- US rate hike: Funds outflow from India as US gives higher RoI
- Global recession fears: Investors pulling out money from vulnerable economies
Macroeconomic implications:
- Costlier Imports
- Increased exports
- Higher inflation rate
- Depleting FOREX
- Exit of foreign investors
- Borrowing impacted
How are other economies faring?
- Pound, Euro, Yen: all are depreciating
- ₹ is one of the better performing currencies owing to stringent economic measures in past
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