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
How is Currency valued?
When the demand is greater than supply, the value of the
currency increases and vice-versa.
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
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
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
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
Benefits to the Hotel Industry
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
Reasons for Depreciation of Rupee for the past 2
FII outflow touches record high USD 7 Billion in
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
Strengthening of US Dollar against major world currencies
Lucrative opportunities in other countries.
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.
Quantitative easing (QE) is an unconventional
monetary policy used by central banks to stimulate the
national economy when standard monetary policy has become
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
With the news of QE tapering Fii’s started offfloading their
investments across Asian markets.
Impact of depreciation of Rupee on
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
Impact on Economy
Steps taken by RBI to curb Rupee
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
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.