Costlier Oil Prices, Tight Financial Conditions, FPI Outflows Responsible For Rupee Fall: Sitharaman

Finance Minister Nirmala Sitharaman on Monday said global factors, such as a surge in crude oil prices and tight financial conditions, along with foreign portfolio investment outflows, are responsible for the fall in the exchange rate of the Indian rupee against the US dollar. On Monday, the local currency opened at 79.76, after closing at an all-time low of 79.82 against the US dollar on Friday.

“Global factors such as the Russia-Ukraine conflict, soaring crude oil prices and tightening of global financial conditions are the major reasons for the weakening of the Indian rupee against the US dollar,” Sitharaman said in written reply to a query in the Lok Sabha.

“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,” she added.

Sitharaman also said the depreciation of a currency indicates a chance of enhancement in export competitiveness but it would also make imports costlier. The Reserve Bank of India regularly monitors the foreign exchange market and intervenes in situations of excess volatility and India has raised interest rates in recent months that increase the attractiveness of holding Indian rupees for residents and non-residents, the finance minister said in her written reply.

Foreign investors in July so far also continue to be cautious about the Indian equity market and have pulled out over Rs 7,400 crore, amid sustained strengthening of the dollar and increasing concerns over a recession in the US. This comes following a net withdrawal of Rs 50,203 crore from equities in June.

With the latest pull out, net outflow by FPIs from equities this year so far has reached around Rs 2.25 lakh crore — a record high. Before this, they withdrew Rs 52,987 crore in the entire 2008, data showed.

The domestic currency has depreciated by about 7.5 per cent against the US dollar since January 2022, due to the outflow of foreign investments, tight monetary policy by US Federal Reserve, surging crude oil prices and general dollar strength. This has been aggravated by global uncertainties arising out of a geopolitical crisis due to the Russia-Ukraine war.

The rupee had stood at 73.77 to a dollar on January 12, 2022, which has now declined to 79.76 against a dollar. It plunged to a record low against the US dollar for the fifth straight session on Friday. The rupee on Thursday closed at 79.99 against the dollar, very close to the 80 mark.

However, apart from the rupee, currencies of various countries have also fallen. For instance, recently, the euro also broke the parity with the dollar and plunged to $0.9998 against the greenback, breaking below the $1 level for the first time since December 2002, before bouncing back above to the above $1 level.

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