Understanding the Fall of Indian Rupee & How it Impacts You

Why is INR Falling?

The depreciation of the Indian Rupee (INR), which has recently reached its lowest ever levels, can largely be traced back to the economics of supply and demand - the demand for US dollars in the international market is higher than that of the INR, causing it to fall in value. Moreover, global macroeconomic instability caused by significant world events intensifies investors' preference for 'safe-haven' currencies, like the US dollar, over emerging market currencies like the INR.

Finally, the international interest rate environment traditionally dictates the flow of capital to an extent. With US interest rates hovering around 6.5%, they appear more attractive to international investors than similar rates offered by other economies, boosting the demand for US dollars.

The following key factors contribute to the depreciation of INR:

• High demand for US dollars and stable currencies
• Macroeconomic instability across the globe
• Comparable or higher interest rate offered by the US

Impact of INR Fall

The depreciation of the INR has a broad range of impacts. Here are a few to consider:

• Studying and traveling abroad becomes costlier: The cost of studying or traveling abroad, which is typically incurred in foreign currency, will rise as the value of the INR falls.
• Higher cost of capital and loans: Foreign entrepreneurs operating in India may seek to offset the higher cost of foreign capital by borrowing more in India, leading banks to raise the interest rates on loans.
• Increased competition for investments: The depreciation of the INR gives foreign investors more purchasing power, leading to increased competition for Indian assets.
• Higher cost of living due to increased import costs: As the INR falls, imports become more expensive, which can cause the cost of living to rise.

What Can You Do?

While it might seem like the fall of INR would negatively impact individuals, there are certain strategies that can help mitigate its effects:

1. Invest your savings: Don't let your savings sit idly in a bank account. Instead, invest them in stocks, bonds, real estate, or other assets that could increase in value over time.
2. Save in US dollars: If possible, consider saving or investing in US dollars to protect yourself against the depreciation of the INR.
3. Earn in US dollars: This could involve working or studying abroad, or finding clients based outside of India who would pay you in US dollars.

Remember, the INR falling is a larger economic phenomenon but with smart moves, you can shield yourself from its negative impacts.