What Happens If Rupee Value Falls Below 100 To US Dollar?

 While there can be short-term benefits, a falling rupee will largely have negative consequences in the long run

The value of Indian Rupee, as compared to the US dollar, has fallen significantly in recent times. The valuation of Indian Rupee has hit a new low of Rs 86.50. While other Asian currencies have also witnessed a slide, the impact is more severe on the Indian Rupee.

Why Indian Rupee is falling?

The primary reason for Rupee's slide is the robust performance of the US dollar. This is referred to as the dollar index, which measures the US dollar against a group of major currencies. The dollar index has been rising, powered by robust jobs data in the United States. This is likely to create a situation where the US Federal Reserve will continue with the higher interest rates. As such, there may not be any rate cuts in 2025. As the dollar strengthens, it has resulted in weakening of other currencies including Indian Rupee.

Another reason is that the Reserve Bank of India (RBI) is not working aggressively this time to stop the slide of Indian Rupee. The RBI sells dollars whenever required to maintain the value of Indian Rupee. But in recent times, this activity is not as aggressive as it used to be in earlier times.

What happens if Indian Rupee drops to 100 to the US dollar?

It is unlikely that the value of Indian Rupee will drop to 100 to a dollar or even worse. According to experts, the worst may be around Rs 87 to Rs 88 to a dollar by the end of 2025. But even then, a weakening Indian Rupee can have various consequences. Some of these are described below.

Imported goods to become costlier - India imports a wide variety of goods such as crude oil, electronics, cooking oil, etc. When rupee value drops, imports become costlier. This can lead to inflation and have a negative impact on consumer purchasing power. Industries that make use of imported raw materials will also see their input costs going up.

Exports can become more competitive - In the short term, exports may become more profitable with a weakening rupee. However, this is unlikely to be sustainable in the long term. That is because foreign buyers will eventually shift to other sources that are offering more competitive pricing.

 

Negative FDI - A weakening rupee can be considered as a negative development for the economy. In that case, foreign investors may start withdrawing their investments from India. This will have a negative impact on the economy. New investments will also become harder to come by.

Increased debt burden - Indian businesses and the government that have taken foreign loans will find it harder to repay such debts. Such conditions will also have a negative impact on FDI inflows.

Should you be worried?

While the situation is worrying, things may not turn out to be as bad as one may think. The RBI has huge dollar reserves and it can intervene more aggressively if things worsen. The RBI can also increase interest rates to attract more FDI. Such measures will help reduce the slide of Indian Rupee.

source: newspatrolling.com