The Indian rupee has recently experienced a notable decline in its value against the US dollar, reaching a 10-month low of 82.95 per dollar. Several critical factors have contributed to this depreciation. Let's delve into these key elements that have influenced the rupee's performance.
A pivotal factor in the rupee's depreciation is the strengthening of the dollar index, which measures the US dollar's strength against major global currencies. The index rose to a month-high of 103. A stronger dollar often results in weaker currencies in other countries, including India.
The yield on the 10-year US treasury bond increased to 4.18%, indicating higher returns on US government bonds. This rise in bond yields makes US assets more attractive, causing capital to flow into the US. Consequently, this can lead to the depreciation of other currencies, such as the Indian rupee.
Foreign portfolio investors and oil companies purchasing dollars have also impacted the rupee's value. Their increased demand for the US currency has added pressure on the rupee, contributing to its depreciation.
The performance of other Asian currencies against the dollar has also influenced the Indian rupee. Currencies like the Chinese yuan, Japanese yen, Korean won, Malaysian ringgit, and Indonesian rupiah have experienced depreciation, further impacting the rupee's value.
The Reserve Bank of India (RBI) has played a crucial role in mitigating the rupee's depreciation. It is speculated that the RBI may have intervened by selling a significant amount of dollars, estimated between $1.5 to $2 billion, through forward contracts and futures. This intervention helped prevent further depreciation of the rupee.
Global financial market uncertainty, including economic indicators and geopolitical events, can lead to currency fluctuations. During times of uncertainty, investors often seek safe-haven assets, typically favoring the US dollar.
In conclusion, the recent depreciation of the Indian rupee against the US dollar is attributed to a combination of factors including the strengthening dollar index, rising US bond yields, increased dollar demand by FPIs and oil companies, the weakness of Asian currencies, and the RBI's intervention. These factors collectively contributed to the rupee's decline in value.
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