The rupee is in a free fall. The Indian currency touched new lifetime lows of Rs 56.38 to US dollar in early morning trade on Thursday. It is now down 24 per cent in just one year. (Read: Rupee hits new low of 56.38/$)
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Here are five things to note:
1) Overseas travel expensive: If you are concerned about your upcoming overseas summer holiday, there is not much you can do to cut costs. You will have to pay more for your foreign exchange. This is not a good time to plan an overseas holiday if money is an issue. Your overseas holiday is close to 24 per cent more expensive than it was a year ago. If you have surplus US dollars or other foreign currency from your previous travel, you could save some money.
2) Overseas education costs to rise: The close to 24 per cent fall in the value of the rupee means you will have shell out more for your child’s education or for that executive MBA overseas that you plan to go for over the summer.
3) Inflation: The rupee is falling because the UPA government's finances are in disarray. There is a slowdown in gross domestic product or GDP growth. This means the government is likely to miss tax revenue targets as businesses and individuals will likely earn less profit due to slower growth. Although the government is talking about austerity, there is no cut in overall expenditure. India imports more than it exports. Hence, it has a current account deficit. This means more dollar demand, which then hurts the value of the rupee. RBI has to print more money and this adds to inflation. If oil prices fall and gold imports slow through the year, it should ease some pressure on the rupee and curb inflation. However, this makes the country vulnerable to external shocks.
4) Buy shares of export-oriented companies or local consumer companies: There is opportunity in adversity. The BSE IT sector index rose 1 per cent on Tuesday when overall share prices fell. Export-oriented companies that receive revenue in foreign currency are your best bet for now.
5) What next: The rupee is down 24 per cent since July 2011. It is likely to remain weak. This is largely because economic reforms have come to a standstill in India while others are attracting more foreign direct investment. Currencies of Australia, Indonesia and Korea are also down 8-10 per cent. However, analysts are more worried about India than others. As a percentage of the current account deficit, FDI inflows account for only 20 per cent for India. In comparison, Indonesia and Australia get FDI that is more than the current account deficit. India relies more on foreign capital flows in the stock market to finance the current account deficit. With an uncertainty over GAAR, investors are choosing to buy into other markets. This means, the Indian rupee would struggle going forward.
Source:
http://profit.ndtv.com/News/Article/rupee-fall-what-it-means-to-you-304866
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