Rupee weakens against dollar: The rupee has been steadily weakening against the dollar over the past few months. On Thursday (February 6, 2025), it fell 14 paise to a new low of Rs 87.57 per dollar. In such a situation, the question arises that why is the rupee weakening? It has advantages and disadvantages in terms of economy and when will the rupee be strong? Let us know the answers to these questions.
Why is the rupee weakening against the dollar?
There are many reasons for the weakening of the rupee. These include both domestic and international causes. Let’s know about them:
- The policies of US President Donald Trump have increased the likelihood of a global tariff war. Its effect is also visible in rupees.
- Interest rates and bond yields in the US are very high, which is why investors are turning to the US market. It is strengthening the dollar.
- Foreign investors (FIIs) are consistently selling in the Indian stock market. This is increasing the demand for the dollar, which is weakening the rupee.
- India’s trade deficit with countries like China is constantly increasing. This is also causing weakness in the rupee and the dollar is strengthening.
What are the disadvantages of rupee weakening?
Oil and petroleum products will be expensive: India is the largest importer of crude oil. When the rupee falls, the prices of petrol and diesel increase. It affects transportation, logistics and inflation.
Inflation may rise: Rupee weakness makes imported goods more expensive, leading to inflation. Prices of electronics, mobiles and pharmaceuticals may increase.
Foreign loans, education and travel will be expensive: If an Indian company borrows in dollars, it will have to pay more interest. Those who are studying in the U.S., Europe, or other countries may have an increase in spending. Travelling abroad and booking a hotel will become expensive.
What are the benefits of rupee depreciation?
Exports will get a boost: When the rupee falls, India’s exports become cheaper, causing foreign buyers to order more goods. This can benefit the IT sector, pharma and manufacturing companies.
Will increase with money coming from abroad: Indians working abroad will get more rupees. NRI (Non-Resident Indians) people will benefit greatly from this. This will increase the value of money when sent to India.
Tourism will get a boost: When the rupee weakens, foreign tourists spend more in India, which will benefit the tourism sector. Treatment will also be cheaper. It can also boost medical tourism.
When will the rupee strengthen?
The answer to this question will largely depend on the policies of the RBI and the situation in global markets. At the moment, the tariff war and fear of global volatility make it a little difficult for the rupee to strengthen. However, the RBI and the government may take some steps to stabilise the rupee.
- Take measures to increase foreign investment.
- Strategy to increase exports.
- RBI to intervene in the market.
- Reduce dependence on oil imports.
- Adoption of alternative energy sources.
Should India be afraid of rupee depreciation?
The depreciation of the rupee is certainly a concern, but it also opens up opportunities to boost exports. This is a good thing for an emerging economy like India. However, it also threatens to increase inflation in the domestic market. Overall, the depreciation of rupees may hurt some sectors, but some sectors may also benefit. Investors need to be cautious. They should invest in sectors that can benefit from the depreciation of rupee.