Why rupee weakens

The RBI is not doing that for two obvious reasons. Firstly, the RBI wants to ensure that there is a glut of rupees in the system so that the Indian government can continue borrowing at low yields. RBI is avoiding intervention by selling dollars as it would suck rupees out of the system and make its job difficult.

Secondly, the government benefits from a weak rupee as it boosts exports and keeps the trade deficit in check. By not intervening and letting the rupee weaken, the RBI is actually hitting two birds with one stone. Carry trade is a popular international arbitrage strategy employed by traders in financial markets. They borrow in a currency where interest rates are very low like the Japanese Yen and invest in rupee assets where yields are much higher. An unwinding of carrying trades happens in an anticipatory fashion.

When traders see the rupee weakening, they unwind carry trades and further weaken the rupee. That was visible in the month of Apr The rupee has been weak because that is, perhaps, the need of the hour. It may remain so as long as the government has an aggressive borrowing program. Related Tags:. Open Free Demat Account Rs The Indian rupee fell to a month low of However, the only good news is that the rupee is still higher than its all-time low of Rising crude oil prices and strong US dollar are seen to be the key reasons for the sliding rupee.

OPEC's decision not to increase output further exacerbated global supplies. The Chinese credit crisis and global fuel crisis are likely to hit emerging economies harder than others. There are fears of economic slowdowns, credit defaults and loan repayment delays to the IMF and other global lending agencies," says Vijay L Bhambwani, head of research, Behavioural Technical Analysis, Equitymaster.

Another reason for the rupee's fall is the dovishness of RBI in comparison to other central banks of emerging markets. This coupled with inflationary concerns makes India's real rates less attractive compared to some of other emerging markets," says the report. In the midst of all the positive factors that favour the defiant bulls, a bigger challenge for them may be emerging from the dollar bulls as the rupee is slowly weakening and staring at a breakdown point.

The rupee on Monday closed at The domestic currency on Thursday settled at The domestic currency today opened at The rupee was last at The domestic currency on Wednesday edged closer to The rupee on Wednesday opened at ETMarkets caught up with two experts on the Indian currency to take a look at what is the road forward for the rupee. The rupee on Monday, settled at The Indian currency had opened the day at The year US bond yield was last at 1.

The rupee on Thursday settled at The domestic currency had opened at The rupee has taken a beating over the past couple of days, weakening 0. At the interbank foreign exchange market, the rupee opened on a weak note at For a brief period, it ventured into positive territory and touched a high of Meanwhile, the Dollar Index, a gauge that measures the greenback's strength or weakness against six major currencies, was at Have you read these stories?

Covid jabs now at railway, bus stations Updated: Nov 11, , In the same period, only the Turkish New Lira has lost more than the Rupee as it declined 4. While Brazilian Real has lost 3. Thai Baht and Indonesian Rupiah have lost 2. Rising Covid numbers — over 1. As several states are now considering more stringent lockdown measures, market participants are concerned over delay in the recovery of the economy, that was hit hard in by the pandemic.

Besides, the strengthening of dollar in line with expectations of better growth in the US economy, has also put pressure on the Rupee. While the Dollar was trading at 1. Since March 1, , the Dollar has gained close to 1.