In yet another major concern for the Indian economy, the Indian rupee collapsed to a record low of 69.10 against the US dollar by plunging 49 paise in early trade today.
This is being blamed on the rising crude oil prices.
This phenomeonon has deepened concerns about the country’s current account deficit and inflation dynamics.
It need be mentioned that depreciation of the rupee has the potential to increase domestic inflation through the import route.
An already rising crude oil prices will escalate even more once the exchange rate is considered. Oil marketing companies will most likely pass the cost to consumers through fuel price hikes
The rupee’s fall to fresh all-time lows against the dollar is the direct fallout of incessant flight of dollars from domestic equity and bond markets.
It is said that foreign portfolio investors (FPIs) have pulled out a cumulative $9.4 billion from equity and bond market since January.
FPI outflows have been the heaviest in April when outflows from equity and debt totaled $5.6 billion.
US Federal Reserve’s rate hikes have made dollar assets give more returns to investors thereby making emerging market assets look less appealing.>