The Depreciation
- Rupee falls by over 8% this year, a 13-month low against the dollar
- Foreign capital inflows have dried up because of the turmoil in the global financial market
- Increased dollar demand due to crude oil price spike, higher imports
- Curbs on external borrowings by Indian firms contribute to the decline
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The Impact
- With the Chinese yuan set to appreciate, Indian exports become more competitive
- Project and services exports to see improved returns, more employment creation
- More expensive oil imports will put pressure on India's current account deficit
- Anti-inflationary impact of cheaper imports of edible oil and pulses gets negated
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The Expectations
- Rupee expected to remain weak for the next few months, near Rs 42-44 levels
- Rupee gains expected later in the year as global equities on the recovery track
- If the Reserve Bank of India lifts restrictions on borrowings abroad, will improve rupee sentiment
- Traders feel the rupee will return to Rs 39 per dollar levels by the end of the year
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