Rising crude oil prices, capital outflows and other factors have caused the Indian rupee exchange rate to continue to fall
Xinhua News Agency MUMBAI, Sept. 6, Summary: Multiple factors make the Indian rupee exchange rate continue to fall
Xinhua reporter Zhang Yadong
The Indian rupee exchange rate has been falling against the US dollar recently, becoming the currency with the largest depreciation against the US dollar among major Asian economies this year. The rupee closed at 71.75 to the US dollar on Friday, after falling to a record low of 71.97 to the US dollar during the day. Based on Friday's closing price, the rupee has fallen 12.3 percent against the dollar since the beginning of the year.
According to the comprehensive market analysis, the reasons for the depreciation of the rupee against the dollar include: rising crude oil prices, widening trade deficit, increasing capital outflow, and the government's lack of willingness to intervene.
India imports 82% of its oil, and soaring crude prices mean India has to spend more dollars to import oil, which is not good for the rupee's stability. The value of India's oil imports in June was $12.73 billion, up 56.61% from a year earlier. The April-June period is the first quarter of the fiscal year, and India's oil imports during the period stood at $34.64 billion, up 49.44 percent year-on-year.
India's trade deficit has continued to widen in recent years. India's trade deficit reached $156.83 billion in 2017-18, the highest since 2012-13, widening to 1.9 per cent of China's gross China's product from 0.6 per cent in the previous fiscal year. In the 2018-19 fiscal year, India's trade deficit is expected to widen to 2.8 per cent of GDP as the trend of widening trade deficit is not expected to be effectively curtailed. The latest data from India's commerce ministry showed that India had a trade deficit of $18 billion in July, the largest monthly deficit in nearly five years.
Related government agencies expect India's oil import bill to increase by $25 billion to $50 billion in the 2018-19 fiscal year. In response to rising international crude oil prices, India will raise its budget deficit target to 3.5 per cent of GDP in the 2018-19 budget from 3.2 per cent previously.
In addition, the US Federal Reserve's rate hike has prompted global investors to retreat from emerging markets, exacerbating the rupee's depreciation. India lost more than $2 billion in foreign investment in April alone, the highest level in 16 months, according to local media reports.
The Indian government has not actively intervened in response to the rupee's decline. Although the depreciation of the rupee makes India pay more for imported oil, the depreciation of the currency also helps India's foreign trade exports, making Indian exports more competitive, in line with India's policy of expanding foreign trade exports as an important way to achieve economic growth.
President of All India Plastics Manufacturers Association Harshad Desai told reporters in an interview that the depreciation of the rupee against the US dollar will make India get more orders, which will promote India's foreign trade development.
Market analysts believe that due to the improvement of the US economy and the stable US dollar interest rate hike expectations, coupled with the deterioration of the international trade situation, the outlook for the Indian rupee is not optimistic. More than half of the 20 analysts polled by the Economic Times of India (ET) forecast the rupee to fall to around 73 per dollar by the end of the year.