Rupee Value Fluctuations & Best Remittance Options

Updated on September 10, 2019 04:11 pm

With 180 currencies around the globe, it is no surprise that the value of currency of every country never remains static. When pegged with other currencies, the value of money changes every moment. However, the US dollar is the strongest currency in the world, according to the International Monetary Fund (Source: International Monetary Fund). To explain fluctuations in rupee value in comparison to the US dollar, we have to examine the economic conditions and policies affecting the value of a currency. These could range from interest rates, growth rate, inflation, geopolitical conditions or employment rates.

What is foreign exchange rate?

The rate at which one currency is exchanged for another is considered the exchange rate between two currencies and is known as the foreign exchange rate. As stated earlier, it is influenced by several factors like political stability, supply and demand of currencies, inflation, economic performance, capital flows, interest rate differentials, etc. As these factors are volatile, the value of currencies keeps fluctuating.

How is the Indian Rupee exchange rate calculated?

Earlier, the Indian Rupee was pegged to a basket of currencies, dominated by USD. In 1993, his changed from a fixed exchange rate system to a market-based floating exchange rate system. The liberalization measures adopted then, resulted in a rise in the volatility of the Indian Rupee. To remain stable in the foreign exchange market, the Reserve Bank of India adjusts domestic liquidity through bank rate, cash reserve ratio, repo rate, and the sale & purchase of currency.

What causes currency fluctuations?

A floating exchange rate and a fixed exchange rate are the two ways that currency prices for any economy can be determined. The floating exchange rate is determined by the supply and demand in the forex market as practiced by most advanced economies that allow their currencies to freely float in the market. The fixed exchange rate on the other hand is predominantly determined by the governments of countries like China.

Reasons for Indian rupee fluctuation against the dollar

There are some key reasons behind the Indian Rupee fluctuation:

FII outflows- When foreign investors find alternative markets that are more attractive in other countries, they pull out their investments. In doing so, they sell their equities and demand dollars in return thereby, increasing the demand for dollars which results in further increasing its price. The data below show the FPI investment trends as of the 6th of September 2019.

Source: NSDL
Weakness in oil prices - India produces 20% of the world’s crude oil. The rest is imported from Iraq, Saudi Arabia, and other Gulf countries. The demand for fuel shows an increasing graph. It is estimated that if the price of crude oil increases by USD 10 per barrel, the GDP of our country decreases by 0.2 to 0.3 %. The demand for crude oil results in an increased import bill which impacts the rupee by further reducing its value.

Source: Market Insider
Increasing trade deficit- The imports far exceed the exports of our country. This trade deficit in the simplest terms means that the outflow of foreign currency is more than the inflow in the Indian market. When the dollar goes out of India, its price increases and the price of the Indian rupee decreases.

Impact of dollar rupee fluctuation on Indian Economy

The Indian rupee has been weakening against the dollar almost consistently. A weak currency impacts the economy in various ways:

Commodity cost - Currency weaknesses lead to more expenses for commodities imported into the country. Crude oil and gold are examples of commodities that are traded higher in the domestic market as compared to international markets.
Current account deficit (CAD) - A weak currency will widen India’s current account deficit further. A falling rupee vis-a-vis the dollar increases the cost of imports.
Foreign capital flows - The trade deficit suffers as the gap between imports and exports widens.
Inflationary pressure - Higher costs of commodities exert pressure on overall economic activity thus, resulting in inflationary pressure.
Impact on GDP - Increased input costs due to a weakened rupee hits the profit margin of companies. This impacts the short-term growth prospects of the company.
Rise in interest cost – If Corporates have to face an additional interest costs, this may also affect the sentiments of foreign investors.
Remittances - A weak rupee versus the dollar benefits people who are remitting funds to India resulting in an increase of remittances.

Best remittance options when rupee fluctuates

A depreciated Indian rupee has a positive impact on inward remittance. Be it USD, AUD, CAD, British Pound or any other currency, remitters get better value in terms of the rupee. For instance, if you had sent $1000 when the USD to Indian Rupee rate was 68, your family would have received 68000 Rupees. Now, if you send the same $1000 when the USD to Indian Rupee is 72, your family will receive 72000 Rupees. Put simply, it would be the ideal time to convert your dollars into rupees.

So, what is the best way to send money to India?

Our short answer is online . Sending money online is fast, convenient, secure, and the cheapest. Here is our list of top money transfer companies to send money online from the US to India.

Xoom
RIA money transfer
Transfast
Western Union
Vianext Fast Remit
Axis Bank RemitMoney
Wise (formerly known as TransferWise)
InstaRem
MoneyGram
ICICI Bank Money2India
OFX

With $79 Billion, India was the top recipient of remittances in 2018! By the sheer magnitude of the industry alone, the Remittance industry of India attracts many players making it one of the most competitive markets in the world. Be sure to look out for deals and coupons offered by different money transfer when you send money online.

What is the best way to send money online to India?

This depends on your priority. Do you need to send money for an emergency? Or are you looking for the best exchange rates and can wait for a few days for your money to reach India - Firstly, regardless of your priority, make sure you compare the top money transfer companies on CompareRemit side-by-side. Secondly, make a selection after taking into account the exchange rate, transfer fees and the time taken to remit using filters like “Fastest” or “Best Rate.” And finally, pick the best deal that suits your needs.

We have compared Wise and Xoom using CompareRemit below. Please note that the data is for sending $1000 from the US to India as on 6th of September, 2019.

As you can see, Wise offers a higher exchange rate at ?71.69 for $1 but takes 2 days of transfer time. Whereas, Xoom can move your money within 4 hours but offers a lower exchange rate at ?70.82 for $1.

In this example, if your recipient needs the money urgently, use Xoom. If you can wait 2 days and want a higher exchange rate, use Wise. Currency movement has a wide-ranging impact on the economy. Investors and remitters of funds who are exposed to it should monitor their movement to make the most of the fluctuations.

If you would daily updates, you can follow us on Twitter @compareremit. Similarly, you can compare multiple money transfer companies on our website or mobile app available on both Google Play and iTunes stores.

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The Wise Travel Card: Your Perfect Companion for International Travel

Traveling abroad comes with many exciting opportunities, but managing your money efficiently can sometimes be a challenge. This is where the Wise Travel Card becomes an invaluable tool. This prepaid travel card allows you to spend in multiple currencies, avoid high fees, and make your travel experience smoother. In this article, we’ll explore everything you need to know about the Wise prepaid card, how it works, and why it’s one of the best travel cards available today.What is the Wise Travel Card?The Wise Travel Card, also known as the Wise prepaid card, is a prepaid travel card designed to help you manage your money when traveling abroad. 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How to Send Money from the UK to Philippines

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Transfer fees, on the other hand, are charges imposed by remittance companies for their services.It's worth noting that exchange rates and transfer fees can vary significantly across different companies. While some providers may offer competitive exchange rates, they might compensate by charging higher transfer fees. Conversely, others may provide lower transfer fees but offer less favorable exchange rates.It's essential to find a balance between favorable exchange rates and reasonable transfer fees to maximize the value of your remittance. Some companies may offer promotional rates or discounts for first-time users, while others may have ongoing promotions or loyalty programs. Comparing different remittance providers using platforms like CompareRemit can help you find the best combination of rates and fees for your transfer.Will GBP to PHP Increase or Decrease?As of the latest data, the GBP to PHP exchange rate stands at 1 GBP to 71.81 PHP. CoinCodex forecasts a potential 9.43% rise in the GBP to PHP exchange rate over the next year, reaching approximately ₱ 78.22 at some point during the year. While exchange rate predictions provide valuable insights, they are subject to change based on various economic and geopolitical factors. Monitoring exchange rate trends regularly can help you identify favorable opportunities for sending money to the Philippines.When is the Best Time to Send Money from the UK to Philippines?Determining the best time to send money involves strategic planning and analysis of exchange rate fluctuations. Referencing forecast predictions and using comparison sites like CompareRemit can help you track the best exchange rates and promotional offers from top remittance companies. 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Understanding USD to PHP Exchange Rates in 2024

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