How the US Dollar is Getting Stronger Against the Indian Rupee

Updated on April 12, 2022 10:16 am

The Indian Rupee has closed at a 20-week low against the US dollar. Paired with the unexpected outcome of the US presidential election this past week, the main reasons for dragging the rupee down can be accredited to the strike on black money via demonetization of high-value currency notes and weak industrial output. The US currency, in turn, has strengthened based on speculations that the policies of the US President-elect Donald Trump would be inflationary and lead to a rise in the interest rates, thus impacting foreign money flow to emerging countries like India.

Foreign investors withdrew over Rs. 2,350 crore from the stock markets as the US-backed assets are looking more attractive and as a result, the economy is expected to improve in the coming quarters.

According to India ratings, the sudden decline in money supply and a simultaneous increase in bank deposits - due to withdrawal of 500 and 1000 rupee notes - will adversely impact consumption demand in the economy. This, coupled with the depreciation of real estate, construction and informal sectors, will further weaken the rupee in the upcoming months.

It is very much possible in the upcoming months, as well as even forecasted by many agencies, that US Dollars will become stronger against Indian Rupees. All this means is that the spending power of the NRIs will increase, leading to a rise in the remittance flow to India.

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