The Indian Rupee hit the historical low of 79.66 against the US Dollar. The biggest reason for the downfall is the money pulled out from the Indian economy by the Foreign Portfolio Investors (FPIs) and Foreign Institutional Investors (FIIs) pulling out 2.32 trillion in last 6 months.
Main Reasons :
- Rise of new Covid-19 cases:
The Rupee came in under pressure in line after a sharp rise of new Covid-19 fresh cases of 1.6 lakhs resulting in key concern.
- RBIs announcement on injecting G-SAP programme:
To maintain fairly accommodative monetary policy and that will inject liquidity through the Government securities Acquisition Programme (G-SAP) starting with Rs.1 lakh in the current quarter.
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Measures needs to be taken to reduce the impact:
The RBI of india has sufficient reserves to manage the fluctuations, whereas hedging is a viable option for the importers to protect themselves given the current hedging cost of 4% might limit the benefits. The central bank may buy back the bonds from the market to increase rupee supply. This might help to bring down the value of dollar, another way is by sucking out the liquidity out of the market by hiking the interest rates for the general public. People will tend to deposit more in their banks reducing the liquidity.