Context:
The Indian rupee recorded its worst performance in three years during Samvat 2081 due to persistent global economic pressures and rising crude oil prices.
Key Highlights / Details:
- Rupee Depreciation Trend:
• Rupee fell 4.62% during Samvat 2081
• Closed at ₹87.97 per USD, compared to ₹84.02 a year ago
• Hit an all-time low of ₹88.80 before RBI intervention - RBI Intervention:
• RBI sold $5 billion to stabilize the currency
• Prevented sharper depreciation beyond ₹89
• Shifted focus to managing volatility rather than defending a specific level - Global and Domestic Factors:
• Strong US dollar and high US bond yields
• Rising crude oil prices
• Weak exports and widening trade deficit
• Global geopolitical tensions affecting forex inflows - Comparative Forex Pressure:
• INR underperformed the Asian currency basket of 14 currencies
• Other emerging markets showed better resilience
Relevant Prelims Points:
- Exchange rate regime of India: Managed float system
- RBI tools to manage forex: Spot market intervention, swap agreements, forex reserves
- NEER vs REER: Real Effective Exchange Rate (REER) measures competitiveness
Relevant Mains Points:
- Impact of rupee depreciation on inflation and imports
- Benefits for exports but risk to CAD and foreign debt servicing
- Role of RBI in exchange rate stabilization
- Relationship between global macroeconomics and currency volatility