Dollar Up and Rupee Down - Why

Now that value of rupee has improved, will there be a reduction in fuel prices? When last checked : 1$ = 62.97 INR.

The above question was asked by one of our readers. My answer for this will be no or if it will be, it will be really less. When the value of rupee deteriorates, government raises fuel prices and prices of other commodities but when it improves, the government never lower the fuel prices or rates of other commodities of daily living. If the fuel prices will be reduced, they will not be done now considering the value of rupee is improving but they will be done on a temporary basis as the and polling and election dates are coming near.

Almost everyone is cursing the Indian government for this unfortunate downfall of rupee but do you exactly know what has actually happened.

Our honorable Prime Minister Manmohan Singh finally spoke up about the recent fall of rupee and promised the country that we will not let it happen anymore. Due to this, traders gained some confidence in rupee and it bounced back to 62.97 from 63.90 for 1 dollar.

Dollar is unfortunately climbing up heavily against our rupee. It is a great problem for us, Indians. The dollar is moving up at an uncontrollable rate and the value of rupee is going down. If it keeps on going like this, by this year-end, we will be seeing rise in petrol prices to 90 to 95 rupees. Right now in Delhi petrol prices are 74 rupees per liter and the diesel prices have also been raised by the government so you can imagine that what will be the situation of all the commodities, the things we use for daily living, everything will go high and trucks use diesel for transportation of all our daily use commodities.

And according to some top financial analysts in the market, the news is that the dollar will be at 70 INR by the end of this year. The constantly upward sliding rupee is hurting everyone but here the NRIs are enjoying the most as they are getting more value for their dollars in
Indian rupees that they are sending back home.

What do you think? Is it the right time that Indian politician's money from their Swiss bank accounts should be taken out or will it be really late for us? Or we start depending on our own oil resources and stop importing the yellow metal from outside? The tax on gold has been again increased by the government. Will it help? What next. More taxes and now this brainwash of innocent public by the government in the form of food security bill. Is our government capable of providing food to 84 crore Indians for free. Come on it is next to impossible and if it is true, nothing comes for free. In the form of food security billl, the government will charge us heavily in the form of taxes.

Okay let us come to the real point. What is the current rate of dollar today?

1 US dollar = 62.97 Indian rupees.

The oil minister is going to again raise petrol prices by December this year as rupee is down again. RBI is always trying to protect rupee by selling off dollars but still has been unable to hold rupee from falling at a rapid pace. Due to rise in dollar, gold prices had slashed down in the past drastically but are up a bit now as festive season is approaching and people will be buying more gold.

The last resort of controlling rupee fall is issuing bonds by Reserve Bank of India. To prevent further downfall of Indian rupee, RBI is considering selling dollars directly to oil marketing firms.

Now let's look into why dollar is appreciating heavily against rupee.

Recession is less in India, then why dollar is moving up when rupee must be strong.

We all know about recession and it is worse in US and better in India as compared to US, then how come dollar is appreciating with respect to Indian rupee? Don't you think that Indian rupee should go up and US dollar should move down?

There are so many reasons of depreciating rupee, but I would like to explain the first one, which is most important.

Why dollar is moving up and rupee is going down? There has been a recent fall in rupee since some days ago and a dramatic increase in dollar. It was 55.50, then 56.12, 57.10, 58.60, 59.54, 61.40 and stable, and now according to google search of "1 US dollar to INR":

1 US dollar = 62.97 Indian rupees.

Why is this happening?

First Reason - Dollar is in Demand

BRIC countries like India have emerging economy, so a huge percentage of investment in India is from outside the country, especially from US but due to recession in US, big institutions are collapsing and many of them are on the verge of breakdown. They are suffering huge losses in their country. They have to maintain their balance sheets and look strong on all statements, so to recover losses in their country, they are pulling out their investments from India. Due to this pulling out of investment by these big companies from India or in other terms disinvestment, demand of dollar is raising up and rupee is depreciating.

There was a huge interest rate differential between India and US. Now RBI is reducing all kind of rates to increase money supply in market, so deposit rates will also move downwards. It will reduce the rate differential between two countries and affect the fixed investment in India in a negative manner.

Second reason - Collapse of International Trade

If you observe in terms of international trade, commodity prices are crashing at international level.

Importers are trying to accumulate dollars, as they have to pay in terms of dollars and at the end demand is increasing against the rupee. This has not happened yet due to lack of confidence in all kind of markets.

Exporters have a very few orders from outside countries, so there is no matter of converting dollar into rupee thereby decreasing demand for rupee.

Besides the above-mentioned two reasons, there are many other reasons, which I would like share in the comments section below with you and others.

Now 1 USD is at 62.97 INR and rupee is expected to depreciate further due to RBI instructions to exporters and banks. The major gainers due to rupee down are Indian IT companies including BPOs, call centers, outsourcing companies, and Indians who earn in dollars.

How to save the value of rupee?

• The number one step should be taken by Indian government to put our Reserve Bank of India’s gold reserve on public display. This will bring more confidence in Indian rupee.
• Stop buying foreign goods. Start buying Indian products. If rupee will fall, the price of all products will be high and this is the reason why you are seeing 1 kg onion selling at a rate of 80 to 90 rupees. Why not stop buying goods from foreign firms and concentrate on buying products of Indian manufacturers.

The above were my two cents to save the value of rupee, now please share your views