The Federal Reserve’s vigorous monetary tightening, along with the situation in Ukraine, spurred a dollar gain this year, putting pressure on the Indian rupee and other risk-sensitive currencies around the world. The great Indian rupee, INR, was traded at 82.7 per USD in the second half of December this year. This data is closer to its record low of 83.2 in October and is on track to conclude 2022 at around 11% down, which would be the worst year in the past nine.
The Reserve Bank of India, the country’s central bank, has raised its interest rate benchmark by 2.25% in 2022 to combat the perilous effects of rising inflation. This higher rate of interest is deemed nearly half the 4.25% rise from the FED; and this step by the central bank made the dollar index more desirable, which eventually deterred international investors from placing their investments in India. Contributing to the worsening effect at the same time, a weaker rupee increased import costs, notably for oil, increasing the country’s trade imbalances.
Sectors where the depreciation of the Rupee is seen!
According to SIAM (Society of Indian Automotive Manufacturers) data, the country called “the Golden Bird” reported a 5.1% drop in overall passenger vehicle sales. This drop will be 276,231 units in November 2022, following a 5.3% drop in October due to higher borrowing rates. According to industry observers, passenger vehicle sales climbed by 28.1% year on year, showing strong consumer and business attitudes.
Annual wholesale inflation.
The annual wholesale price inflation in India made a downward route to 5.85 % in November 2022 from 8.39% in October, falling short of market expectations of 6.5 %. This was the lowest level since February 2021, because the prices for both manufactured goods fell from 4.42% in October to 3.59% in November. The price of metals decreased from 1.32% -0.07%. The statistics revolving around fuel like gasoline and power fell from 23.17% to 17.35%.
The falling list doesn’t seem to end here. Furthermore, prices for primary commodities show a downward path from 11.04% to 5.52%, with food costs decreasing dramatically from 8.33% to 1.07%. The wholesale prices fell 0.26 % month on month in November, which marks a reverse trend of an upwardly revised 0.39 % rise in October.
A brief comparison of currencies.
Although the Indian rupee in the year 2022 has seen a plummetting of 9.8 percent, it has been far more stable than other currencies like the Japanese counterpart Yen, which has marked a loss of 22.6% year to date against the USD. Other currencies, involving the South Korean Won, are down 17.1%, while the pound sterling is low by 16.6%. The peso in the Philippines is down 13.6%, the euro by 14.2%, and the Taiwan dollar is down 13.5%. Indonesian Rupiah (down 8%), Singapore dollar (down 5.4%), and Hong Kong dollar (down 0.7%), according to statistics from sources, is given a reward for remaining more stable than the INR, in front of the strongest USD.
Is the tightening effect of RBI going to end soon?
Consumer inflation slowed sharply in November, according to new data from several sources, lowering estimates of how far the RBI may raise key interest rates. This is because India’s 10-year government bond yield exhibited a downward move from a two-week high of 7.3% on December 9th. Retail price rise slowed to 5.9% year on year, which is low from 6.8% the last month. This was much lower than the 6.4% predicted.
Fortunately, this is the first time since December 2021 that the dangerous parameter inflation was a bit easy on the Indian rupee. This is because the inflation was below the central bank RBI‘s upper limit of 6%, paving the way for expectations that the bank’s tightening cycle is coming to an end.
The final verdict.
It is not the first time that the Rupee is showing its negative consequences. In 2021, the rupee fell approximately 1.5 percent, while in 2020 and 2019, it fell over 2% each, and in 2018, it fell more than 8.5 percent. The rupee had been falling for the past five years, but 2022 was unavoidably the worst. On October 20, this year, the local currency touched a low of 83.29 against the US dollar.
The Indian rupee has lost about 10% of its value this year, breaking through the lowest mark of 82 against the US dollar for the very first time in history. Various financial analysts, despite the ultimate breakdown of the rupee, announce statements in favor of the home currency and say that it is in a stronger position than other currencies when compared to the US dollar.
edited and proofread by nikita sharma