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Tag: indian rupees

  • Rupee Strengthens to Under 85 Against Dollar on Robust Equity Inflows

    On Monday, the Indian rupee staged a swift rally, momentarily appreciating to 84.96 against the US dollar before settling at 85.03. This was the rupee’s best trading day since December 20, 2024, and a marked improvement from a close of 85.49 last Friday. Dealers attributed the gains to very strong buying in domestic equities and active dollar-selling by foreign banks. In fact, the rupee’s 0.49% intraday rise was the largest single-day gain since April 11, clearly reflecting a market that has taken a strong shine to the currency.

    At the start of this month, the rupee had also dipped beneath the 85 threshold on April 4, reaching as low as 84.95. However, meagre customer demand and a stronger dollar due to rising U.S. Treasury yields, along with expectations of a more aggressive Federal Reserve, kept the rupee under pressure. On Monday,  the Indian currency had gained some demand along with a slight boost coming from a more stable dollar. By the end of trading, the rupee had managed to push up a little, offering some direction. 

    Equity Markets and Foreign Inflows Boost Sentiment

    The resurgence of the rupee was fueled by a jump in the domestic equity market, where heavyweight stocks like Reliance Industries vaulted over 5 percent after they too beat quarterly earnings estimates. Reliance’s stellar performance helped lift the broader market sentiment, in turn attracting foreign portfolio investment back into Indian equities.

    A declining dollar worldwide also added to the rupee’s momentum. The dollar index, which measures the greenback against six major currencies, dipped to 99.6. Meanwhile, other major global currencies, including the euro, pound sterling, and a number of Asian currencies like the Thai baht and the Malaysian ringgit, gained some ground against the dollar in April and early May, which further boosted the rupee’s trajectory.

    While Treasury officials observed a psychological resistance level around 85, they said that a convincing breach at that level could open a path for further appreciation. Most heads of Treasury believe that if the momentum continued, there was a chance that it could open below 85 in the next session and reach an additional movement of anywhere from 60 to 70 paise beyond that.

    Bond Yields Rise Amid Foreign Selling

    Though the rupee saw gains, the government bond market felt some pressure. The yield on the 10-year benchmark bond rose 4 basis points, to 6.40 percent, up from 6.36 percent at the previous close. 

    Dealers linked the sell-off to profit-taking by foreign banks that had purchased the bonds. And they cited as reasons for the seemingly contrary movement the uptick in India-Pakistan tensions and the need for some participants to take profits after a recent run in both the rupee and the bond market. 

    Accordingly, the authorities aim to offer a fresh 10-year bond, with INR 30,000 crore of securities available in the first auction on Friday. The new bond is likely to see strong demand, given the risk-off sentiment in the markets and the surging demand for fixed-income assets. The positive outlook for bonds is brightened further by the Reserve Bank of India’s announcement that it would buy government securities in open market operations worth INR 1.25 trillion.

  • Why Indian Rupee Is Falling Against US Dollar? (Explained)

    The Bretton Woods agreement made the US Dollar the official leader of the World’s reserve currency supported by the world’s largest gold reserves. This was after the Second World War. Even today the USD is one of the world’s strongest currencies. The Dollar bill as we know it today was printed in 1914. Even today, the central banks of various countries, including India, hold almost 60% of their reserves in USD.

    Currency Demand and Force
    Indian Rupee against the USD
    What Does the Future Hold for Indian Rupee?

    Currency Demand and Force

    In simple terms, the value of any currency increases with an increase in the demand for it and decreases with the decrease in demand for it. On the global stage, the force of currencies is determined by central banks. However, the demand for the said currency is determined by the demand for the goods and services produced by the country.

    The same rule applies to foreign exchange requests. The higher the demand for foreign exchange, the more currency falls.

    Why the Indian Rupee Is Falling Against the Dollar?

    In the post-Covid world of 2022, India has seen a steady decline in the value of INR against the dollar. It is imperative to understand that the Indian Rupee has steadily downgraded against the dollar for several decades. One of the key reasons for this has been the rising inflation affecting the Indian Economy.

    Currently, the Indian Rupee is valued at around INR 79 to 1 USD. The last couple of weeks has seen the Indian Rupee reach an all-time low value of INR 79 against 1 USD. There are several reasons for this steep decline, some domestic as well.

    One of the key reasons for this decline is the pullout of FIIs in an uncertain global market. Added to this are the geopolitical uncertainties due to the Russia-Ukraine war.

    This has led to investors retreating from emerging markets like India to the safety net of the USD. According to the latest figures, the Foreign Portfolio Investor outflow is to the tune of 2.11 Lac Crore.

    Reasons domestic in nature include the steep price rise in crude oil. Added to this pressure is the elevated cost of edible oil again due to the Russia-Ukraine conflict. In light of the fact that most of India’s crude oil and edible oil requirements are imported, this elevated price will continue to put pressure on the Indian Rupee.

    The Indian Rupee’s performance has been backed into a corner. Worsening terms of trade on the global platform, geo-political instability, FIIs foreign institutional investor outflow and the crowning glory – RBI’s FOREX stance. However, the scenario is not as grim as it looks on the outside.

    On the Global Stage, the Indian currency has held up against the dollar a far sight better than some other counterparts. This showcases a light at the fast-approaching end of the tunnel.

    US Dollar to Indian Rupee Exchange Rate
    US Dollar to Indian Rupee Exchange Rate

    What Does the Future Hold for Indian Rupee?

    The effects of the war in the short term will be seen in the upcoming quarter which might continue to put pressure on the Indian Rupee. In the short-term future, the Indian Rupee may settle down between INR 77 to INR 79 against 1 USD. However, there are many reasons to look forward to a strengthening INR in the global markets in the future.  

    First and foremost is the fact that the RBI has a comfortable FOREX reserve. Even though the Indian current deficit is well over 90 billion USD, this reserve would help prevent further weakening of the Indian Rupee against the USD.

    While the COVID-19 pandemic brought the world to a standstill for a few months, it also triggered companies to relook at their internationally located manufacturing units, most of them based in China.

    The overall unfriendly policies of the Chinese Government have also prompted most manufacturing companies to start looking at alternative emerging markets like India and Indonesia to set up their plants. This is also likely to attract FIIs back into the country and increase their investment portfolios

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    Conclusion

    As the Indian economy strengthens with the domestic financial markets edge towards a bull run, the signs are all there, that even though the immediate future is slightly bleak, there is every reason to hope for a fantastic recovery of the Indian Rupee against the USD.

    FAQs

    What are the reasons for the decrease in rupee value?

    Rising crude oil prices, rising import costs and the Russia-Ukraine war are some of the reasons for the fall in the rupee against the us dollar.

    What happens when the rupee falls against the dollar?

    If the rupee faals against the dollar the cost of raw materials will increase which will be passed on to the consumers so the cost of products will also increase.

  • Why RBI has stopped fresh stock of Rs 2000 notes and pulled out 57 crore worth notes in FY21?

    The Reserve Bank of India has been reducing the circulation of 2000 rupee notes in the country. The country has seen a drop of 27% of its 2000 notes from circulation. Let’s look at why the RBI has stopped the fresh stock of 2000 notes and pulled out notes worth 57 crores in the FY21.

    INR 2000 Notes in the Market
    Why has RBI stopped Fresh supply of INR 2000 notes?
    Increase in the number of other notes
    Market share of INR 500 and INR 10 notes
    FAQ

    INR 2000 Notes in the Market

    The number of Rs 2000 notes in the Indian economy has been reduced in the year 2021 from its peak in 2017-18. In the year 2017-18 the number of notes circulated in the Indian economy was around 33,630 lakh and in March 2021 it has reduced to 24,510 lakhs.

    In the peak, the value of Rs 2000 notes is expected to be around INR 6.72 lakhs which has dropped to 4.90 lakhs in March 2021. The number of 2000 notes that are removed from the market is around 9,120 lakhs and has a value of around INR 1.82 lakh crore.

    Why has RBI stopped Fresh supply of INR 2000 notes?

    The latest annual report which was published by the RBI doesn’t convey any news about the missing notes. However, it is to be noted that the RBI has stopped producing the Rs 2000 notes as the notes are not coming back to the banks.

    These high value notes are not available for people in the ATMs as well. It is estimated that the Rs 2000 notes are majorly hoarded in the form of black money as they have high value and require lesser space compared to a bundle of Rs 500 notes.

    The estimated amount of black money which experts had predicted not to come back to the system during demonetization was around 4-5 lakh crores.

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    Increase in the number of other notes

    There is a growth of 10-12% for the money which is being circulated in the country from the past few years. The RBI has increased the circulation of other low valued denomination notes such as Rs 500 and Rs 200 in the market.

    The annual report of the RBI has conveyed that the circulation of notes in the country has seen an increase of around 16.8 % and 7.2 % in the year 2020-21 when compared to the increase of around 14.7 % and 6.6 % in the year 2019-20.

    In terms of value, the share of Rs 500 and Rs 200 notes in the country during the year 31 March 2020 was around 83.4 % and has increased to around 85.7 % in the total market value of bank notes in circulation for the year 31 March 2021.

    Value of Banknotes in circulation across India
    Value of Banknotes in circulation across India

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    Market share of INR 500 and INR 10 notes

    The Rs 500 notes had a total volume has seen an of around 31.1 % as of 31 March 2021, when compared to the previous year of 25.4 %. The INR 10 denomination bank notes have seen a downfall in their total value which had a share of 23.6 % as of 31 March 2021 when compared to the previous year’s value of 26.2 %.

    However, it is to be noted that the RBI has increased the production of INR 500 denomination notes and is trying to replace them with INR 2000 notes. In terms of the volume, Rs 500 recorded the highest volume which was followed by INR 10 notes for the year 2021.

    Conclusion

    The Rs 2000 notes’ main purpose was to ease the shortage of money supply during the demonetization and now the supply has reached a position where the central bank has become uncomfortable as the higher value note will be easier to hoard.

    FAQ

    Are 2000 rupee notes going to be banned?

    No, RBI has announced that they will not issue a fresh supply of 2000 notes but there is no official notice by RBI of it getting banned.

    Why 2000 Rs note is not issued by RBI?

    As per the reports it is estimated that the Rs 2000 notes are majorly hoarded in the form of black money as they have high value and require lesser space compared to a bundle of Rs 500 notes.

    Which note is going to ban?

    Recently, a report claimed that the central bank was planning to ban ₹5, ₹10, and ₹100 notes.