Yesterday Indian rupee fell to 56 per dollar, a day after the central bank disappointed domestic markets by keeping monetary policy unchanged. India is witnessing a fall all round, from stock market to currency value. Only inflation is increasing.
The crude oil has shown some weakness recently but the depreciating rupee has squared off the benefit of price easing.
Following are the few reasons why value of Rupee is Depreciating:
1. INFLATION: Generally, a country with consistently lower inflation rate exhibits rising currency value, but India is facing consistently higher inflation rate so is the lower currency value. Through higher inflation purchasing power of rupee is falling as compared to other currencies.
2. FOREIGN FUNDS OUTFLOW: It is major concern of Indian economy . Because of global uncertainty and various economy crisis like US economy problem, etc. leads to search for the safe heaven among the investors. They are quickly pulling out the money from Indian market and investing in any other safe investments like Gold.
3. GOVERNMENT DEFICIT IS HIGH: The government finances are in a bad shape and the combined central and state government deficit has stubbornly stayed around 10% of GDP. It is high deficit and investors lost faith in local economy.
4. POLITICAL UNCERTAINTY AND CORRUPTION: We are seeing the series of corruptions and there is no good news from ruling party about economic reforms from last one year. India needs political change to gain confidence among the investors.