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The rupee depreciated to an all-time low of 80.05 against the US dollar early on Tuesday, tracking the strength of the American currency and firm crude oil prices.
The currency has been losing strength on the back of global headwinds for a while now.
Indian rupee has declined by about 25 per cent since December 31, 2014. The value of the rupee declined from 63.33 against a dollar on December 31, 2014, to 79.41 on July 11, 2022.
The exchange rate of the Indian Rupee against the dollar was Rs 78.94 per dollar as of June 30, 2022.
Global factors such as the Russia-Ukraine conflict, soaring crude oil prices and tightening of global financial conditions could be the major reasons for the weakening of the Indian rupee against the US dollar.
Currencies such as the British pound, the Japanese yen and the euro have weakened more than the Indian rupee against the US dollar and, therefore, the Indian rupee has strengthened against these currencies in 2022.
The outflow of foreign portfolio capital is a major reason for the depreciation of the Indian rupee, with monetary tightening in advanced economies, particularly in the United States, tends to cause foreign investors to withdraw funds from emerging markets.
Foreign portfolio investors have withdrawn about $14 billion from Indian equity markets in 2022-23 so far. On the impact of falling currency, Finance Minister Nirmala Sitharaman said, nominal exchange rate is only one of the factors that impact an economy.
The depreciation of a currency is likely to enhance the export competitiveness, which in turn impacts the economy positively, while the depreciation also impacts the imports by making them more costly.
The Reserve Bank of India (RBI) regularly monitors the foreign exchange market and intervenes in situations of excess volatility.
It has raised interest rates in recent months that increase the attractiveness of holding Indian rupees for residents and non-residents.