Adventures of the Indian rupee

The Indian rupee has been showing a continual downtrend. It has slipped to 77.77 as against a dollar and freshly to 77.81. The Equity Markets are seeing a major sell off by the Foreign Institutional Investors which is leading to the weakening of Asian currencies. Global inflation has resulted mainly from elevated oil prices which is happening due to the war. 

There has been a quick downfall in the Indian currency mainly because the US Federal Reserve started to tighten the the monetary policy to tackle high inflation in the country. Exercising of the monetary policy in the US, rise in oil prices and global supply side issues has led major countries with trade ties with the US to come under more inflationary pressure.

The exercising of the monetary policy in the US suggests that there is reduced flow of money in the economy, hence reduced demand and reduced prices. This could have led to increased buying by foreign investors (India). This in turn could have reduced or weakened the value of rupee against the dollar. 

The RBI has been active and aggresive in trying to protect the rupee. The widening of the CAD (Current Account Deficit) could put pressure on the rupee due to the increase in the price of crude oil ($100/bbl, for the first time since 2014). The governor of RBI has also stated that exports of goods and services should help contain the CAD.