Where goes the rupee?

The travails of the rupee have dominated newspaper headlines over the last fortnight. Its value has fallen precipitously against the dollar, and is now hovering around the 72 level; it was just under 64 at the beginning of the year. There is now intense debate in the media on whether the Reserve Bank of India (RBI) should step in and take steps to defend the dollar. The U.S. honeypot Finance Minister Arun Jaitley has rightly observed that external factors are the cause. In particular, global capital and perhaps currency speculators have been flocking to the American economy. This is not really surprising because the U.S. economy has become a very attractive option. Some months ago, U.S. President Donald Trump announced a massive decrease in corporate tax rates. More recently, the U.S. Federal Reserve has also increased interest rates. The icing on the global investors’ cake is the booming U.S. economy. Not surprisingly, the dollar has appreciated sharply against practically all other currencies too. For instance, it has moved up against both the euro and the pound. Developing economies are typically even harder hit since global portfolio investors tend to withdraw from these markets, perhaps because their economic or political fundamentals are relatively more unstable. Countries such as Turkey and South Africa have experienced significantly higher rates of devaluation than India.

Source : https://www.thehindu.com/todays-paper/tp-opinion/where-goes-the-rupee/article24963533.ece

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