Why is rupee weakening in dollar market?

Rupee Devaluation: In the last fourth trading session in the interbank foreign exchange market, the rupee fell by thirteen paise to hit an all-time low of Rs 83.29 (provisional) per dollar. The market has woken up due to the sudden fall in the rupee which was almost stable for a long time.
It is true that the rupee has declined against the dollar, but we also have to see that the dollar index has also fallen by 0.11 percent to 105.20 against the 6 major currencies of the world. This means that this trend of decline is not only related to the rupee but also to the currencies of other countries.
The rupee to dollar exchange rate was 75.30 per dollar on 6 December 2021, which reached 76.74 per dollar on 25 April 2022 and 78.20 per dollar on 12 June 2022. On September 20, the rupee opened at 83.09 in the interbank foreign exchange market. During trading it rose from 83.09 to 83.30 per dollar and finally fell by 13 paise to close at 83.29 per dollar.
The exchange rate of the rupee with other currencies in India is determined by the market. Theoretically speaking, the exchange rate of the rupee is determined by the supply and demand of the dollar and other major currencies.
There has been an unprecedented increase in our imports in recent times. Although our exports also reached record levels during this period, our trade deficit increased significantly due to the rapid increase in imports. Portfolio investment is also coming into our country in large numbers, but for some time now portfolio investors have been withdrawing huge amounts from the country, this has not only affected our stock market but has also affected the supply of dollars.
Inflation has been increasing all over the world for some time. In June this year, the inflation rate in America, England and European Union was 8.3 percent, 7.0 percent and 7.5 percent respectively. In this sequence, India has more or less succeeded in controlling its inflation rate, but fears are being expressed that the problem of retail inflation may increase due to the fall in the rupee.
According to a report by the Reserve Bank of India, a one percent fall in the rupee takes our inflation from zero points to 15 percent. History is witness to the fact that high inflation also adversely affects economic growth. That is why the Reserve Bank has received instructions from the government that under no circumstances should the inflation rate increase above 6 percent.
The point to be noted here is that whenever the rupee starts devaluing in our country, speculators start making money and create artificial shortage of dollars in the market through their activities. The Reserve Bank is not only the custodian of India’s foreign exchange reserves but is also responsible for keeping the exchange rate of the rupee stable.
In such a situation, when speculators and market forces try to weaken the rupee, the Reserve Bank intervenes in the foreign exchange market, fulfilling its responsibility of controlling inflation, creating the necessary environment for financial stability and growth. And intervenes, if necessary. foreign currency. Intervenes in the exchange market.
Selling dollars from foreign exchange reserves increases the supply of dollars and resolves the artificial shortage of dollars created by speculators in the market.
After the NDA government came to power at the Center in 2014, work started seriously on this front. Especially in the last two years, there are many efforts of the government, which can further reduce our dependence on imports in future. The results of the Self-reliant India scheme are now emerging.
Raw materials for the pharmaceutical industry, semiconductors, electric vehicles, telecom products and many other products are now being manufactured in India. A decline in imports may reduce demand for the dollar.
Meanwhile, demand for the dollar may decline further as India buys crude oil from Russia and pays for it in rupees. Currently, Brent crude futures, the global oil benchmark, rose 0.42 per cent to $94.32 per barrel.