The Indian rupee has depreciated 15% against the US dollar over the past two months, hitting an all-time low of 64.11 rupees to the dollar in early August. This depreciation has negatively impacted asset classes in India like stocks, bonds, and real estate. While the falling rupee benefits exporters and IT companies, it hurts importers and increases inflation. The decline is largely due to increased fiscal deficit, higher crude prices, and the US Federal Reserve's plans to taper quantitative easing measures, which led to foreign institutional investors withdrawing funds from India. The RBI has taken steps to curb volatility by increasing restrictions on gold imports and absorbing rupee liquidity from banks.

1. Depreciation of Rupee
in Past Two Months

2. Before we continue…
 Repo Rate : The rate at which the RBI lends money to
commercial banks is called repo rate.
 Reverse Repo rate : The rate at which the RBI borrows
money from commercial banks.
 Cash Reserve Ratio (CRR) : The amount of funds that the
banks have to keep with the RBI.
 FII : Foreign Institutional Investor, An investor or
investment fund that is from or registered in a country outside
of India.

3. How is Currency valued?
When the demand is greater than supply, the value of the
currency increases and vice-versa.

4. USD v/s IN Rupee

5. Depreciation Of Rupee
 More and more
rupees are brought in
our country and
dollars are sold
 More and more
rupees are sold and
dollars are brought

6.  The Indian National Rupee (INR) has depreciated 15% in the
past two months.
 INR touched an all time high of 64.11 against US Dollar on
August 08,2013.
 The depreciation of Rupee has severely damaged the quality
of Asset classes
Stocks or equities
Fixed Income or bonds
Money market or cash equivalents
Real estate or other tangible assets

7. Advantages of Rupee depreciation to Indian Economy
 Beneficial to the Exporters
 Good News for NRIs
 Benefits to the IT sector
 Benefits to Investors invested in International
Funds
 Benefits to the Hotel Industry

8. Disadvantages of Rupee depreciation to Indian Economy
 Impact on inflation & fiscal deficit.
 A blow to Indian importers.
 Exporters face difficulty in securing new orders.
 Negative impact on FII flows to Indian market.
 Negative impact on Indian students and travellers
abroad

9. Reasons for Depreciation of Rupee for the past 2
months
 FII outflow touches record high USD 7 Billion in
June,2013
 FII’s offload USD 3 Billion worth equities in July,2013.
 RBI kept interest rates unchanged.
 Increase in Crude prices.
 Increase in Fiscal Deficit of India.
 Unchanged Interest Rates BY RBI.
 USA initiated process of slowing down Bond Buying
programme.
 Strengthening of US Dollar against major world currencies
 Lucrative opportunities in other countries.

10. FII Outflow

11. Unchanged Interest Rates
 RBI kept its interest rates unchanged in its ‘Monetary
Review’ on June 17 and July 30.
 Keeps repo rate unchanged at 7.25 percent.
 Reverse repo rate stays at 6.25 percent.
 Cash reserve ratio unchanged at 4.00 percent.

12. Effect of Unchanged Rates.

13. Quantitative Easing
 Quantitative easing (QE) is an unconventional
monetary policy used by central banks to stimulate the
national economy when standard monetary policy has become
ineffective.
 US Federal Reserve announced Tapering QE on June
19,which started a ‘Fire sale’ in the world currency market,
currencies of major countries started depreciating including
India’s Rupee.
 With the news of QE tapering Fii’s started offfloading their
investments across Asian markets.

14. USD v/s IN Rupee

15. Impact of depreciation of Rupee on
IB
 Exporters are the biggest beneficiaries
 NRIs become richer
 Tourism industry will flourish as the
holidays in India will get cheaper.
 Imports will become expensive •Oil prices will increase
•Rise in inflation
•Poor returns on FII’s
•Difficulty in repayment of loans
•Foreign education will get expensive
•Foreign holidays will get expensive

16. Impact on Economy
 ↑Imports
 ↑Inflation
 ↑Interest Rates
 ↓Fixed Income
 ↓ Growth
 ↓Jobs

17. Steps taken by RBI to curb Rupee
Volatility.
 RBI increases restrictions on gold import by
Canceling Margin Funding to import gold.
The Govt. increased import duty on gold import to
8 % from 6 %.
 RBI creates Demand for rupee by sucking excess rupee liquidity.
 The apex bank restricted the limit of individual bank borrowing
to 0.50 percent of its total deposits (or net demand and time
liability).
 RBI increased the daily average requirement of CRR from 70
percent to 99 percent.
 The RBI will conduct sale of Government of India Securities to
suck up Rs. 12,000 crore.

18. Bibliography
 www.moneycontrol.com
 www.moneylife.in
 www.cnbc.com
 profit.ndtv.com
 www.hindustantimes.com
 investing.money.msn.com
 www.rbi.org.in