New Delhi: The rupee plunged to a lifetime low of 69.62 against the US dollar in early trade on Monday. It, however, recovered a little to trade at 69.39, still lower by 56 paise against the American currency. A falling rupee is bad news for everyone, from companies to individuals to those on the Dalal Street. Here’s how.
A falling rupee makes imported goods costlier, especially oil, since India imports around 80% of its crude oil requirements. Retail prices of petrol and diesel increase, consumer goods using imported raw materials become costlier, vegetables will become dearer, which could push up inflation.
If you are planning an overseas holiday, wait for the rupee to stabilise a little more. At the current exchange rate, you will end up spending more to buy foreign exchange, which would tighten your travel purse strings substantially.
A falling rupee is generally bad news for the market. Export-oriented stocks such as IT and pharma gain as their earnings go up in dollar terms, while oil marketing companies and consumer goods firms, heavily dependent on imports, find themselves at the receiving end. Bears overpower bulls, and markets take a hit.
PROBLEMS FOR RBI
The Reserve Bank of India (RBI) has been struggling to contain inflation. In its last policy review, the central bank hiked its repo rate, or key lending rate, by 25 basis points. If inflation remains on the higher side, it could compel the RBI to keep policy rates high for a longer time.
BUT THERE’S A SILVER LINING
Exporters earn more in dollars, which pushes up their revenues. Information technology companies, with a high proportion of overseas clients, are generally among the biggest beneficiaries. IT stocks gained on Monday, with the NSE IT index up 0.70% in afternoon trade. Tech Mahindra and HCL Tech were among the top gainers.