Thursday, November 24, 2011

Falling Rupee and how it affects you?


Rupee fell for eighth day consecutively on Wednesday to finish at 52.36 against USD. So there's been hype in the market on falling Rupee against USD. We can't blame anybody for this. This is a massive outcome of various things like Eurozone crisis, instability in global equity markets, etc. Investors are looking for safe investment horizons like government bonds that could shield them against any financial vulnerability.

India's central bank, RBI, is closely watching the situation is expected to issue rupee denominated corporate bonds to overseas investors to boost the ailing rupee. Also it plans to buy around Rs. 100 billion worth government bonds to ease the pain on Rupee. The Rupee has lost around 8% against USD since April.

Though the US economy is in a bad condition, factors like Europe's failure to bail-out the countries which are in financial trouble, make the investors' confidence to ruin on Euro. All these factors pushing up the USD value against many currencies (good or bad, it's USD getting the hit!). So one could expect the Rupee to gain in Q1 2012 as the European economy is expected to get some sort of bail-outs from the governments. Once the global confidence among investors roll back, then we could say that Rupee might be back on track against USD (in the range of 45-47).

Decrease in value of the Rupee is good for the people who are working abroad and sends money to their families here. Also, the imports get dearer. There might be increase in price of goods like mobile phones, laptops, TVs, etc in coming months as the import prices would be higher. Energy companies (like oil importers) would also bear the brunt by paying more on importing oil (no surprises if the fuel prices go up!). Exports would be less valuable now and companies that export goods to abroad could expect their top line revenues to come down. Many Indian IT companies that weren't prepared for this free fall of rupee would certainly face the heat in this quarter.

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