Indian Rupee is one of the weakest currencies in Asia and other emerging markets. In this post I will be discussing few reasons for this:
1. India imports more that exports: In March 2012, Indian exports fell an annual 5.7% and imports rose 24.3%. High imports mean more demand for foreign money and this puts pressure on Indian Rupee.
2. Less Foreign Investments: Foreign investments into Indian stocks have went to negative with $545 million outflow in April 2012 from a mere $7.2 million inflow. Foreign Direct investment fell to 2.2 % in February 2012 from 5.7% in May 2011.
3. Fall in Forex Reserves: The country’s foreign exchange cushion is dwindling. India’s foreign reserves fell to around $295 billion on April 20,2012 from about $321 billion on September 2,2011, after RBI sold dollars to prop up the currency.
4. Scope for RBI intervention Limited: Central banks intervene in the forex markets to either prop up the local currency by selling foreign exchange or push it down by buying foreign exchange The scope of RBI in intervention is very limited in our country.
5. Rupee needs global banks to adopt easy money policy: Global central banks are not cutting interest rates or releasing money into the financial system .
Comments and suggestions are welcome