Rupee hits 80 versus dollar: Here's how the falling currency will impact your life

Rupee hit its all-time low and breached the psychological mark of 80 per dollar on Tuesday. Meanwhile, the dollar saw the strongest first half in over a decade, buoyed by recession fears and European woes. This brings concerning news to an economy that is gradually getting back on track after being battered by the Covid-19 pandemic-induced lockdowns.

On Monday, the Finance Ministry said at the Lok Sabha, “Global factors such as the Russia-Ukraine conflict, soaring crude oil prices and tightening of global financial conditions are the major reasons for the weakening of the Indian rupee against the US dollar,” further adding that global currencies such as the British pound, the Japanese yen and the Euro have weakened more than the Indian rupee indicating that the Indian rupee strengthened against these currencies in 2022.

Asheesh Chanda, founder & CEO of global wealth advisory platform Kristal.AI, said that it is a sign that global investors are choosing the safety of US markets over the recession risks of the EU. 

“The impending threat of Russia cutting off gas supplies in winter coupled with the slow intervention by the ECB to control inflation, means that the recession in the EU looks imminent.  Hence, investors are selling euros and buying dollars. It also reinforces the importance of USD as the safest currency during times of uncertainty,” Chanda said.

Chanda also added that now would be a good time for Indian investors to dollarise their investments, as the rupee is expected to decline further. 

Jateen Trivedi, VP Research Analyst at LKP Securities said, “The lack of intervention from RBI could also weigh on sentiments on rupee weakness. Rupee weakness can continue till the time it trades below 79.25 in short term basis towards 80.50-80.75 zone. Dollar index staying above 105 also keeps added pressure on Rupee. Further crude prices action along with FII's inflow outflows shall also give cues to rupee moves.”

The depreciating rupee is likely to have a direct impact also on spending as oil, imports, loans, etc. will get pricey. Increasing prices might also accelerate inflation.

As rupee dips, importing items will get expensive, as importers need to buy in dollars to pay for the goods. Oil imports will get costly too, which can directly impact one’s expenses. Not only imported items, components will also get expensive, which will shoot up the prices of goods like cars and appliances. 

There is likely to be an indirect impact on loans. Since import prices go up with a depreciating rupee, it makes items and commodities more expensive, pushing inflation. When inflation spikes, RBI sweeps in to alter the repo rate, which is currently at 4.90 per cent. Now, with high repo rates, loan rates also get expensive. 

It must be mentioned that inflation and repo rates move parallelly, as interest rates are hiked to stabilise inflation and make borrowing costlier. 

Luxury cars or car components that are imported will get expensive, indicating an uptick in prices of such goods. Phones and appliances that require imported components will also, hence, get expensive. 

As rupee falls, foreign investors will look to pull out of Indian equities, leading to a sharp fall in equity markets. This will result in a decline in stock and mutual funds investments. 

Foreign education will also get more expensive as students will have to shell out more rupees for every dollar. Students planning to go abroad, especially the US, must re-calculate their budget accordingly. 

Travel is another sector that will be impacted, especially since it has just begun picking up after the pandemic. Travellers from India will now have to spend more for their holidays. 

However, there is a silver lining for non-resident Indians (NRIs) sending money back home from the US as they will end up sending more in rupee value. Exporters of goods and services are also likely to be benefited by the depreciation of the rupee as exports will now become more competitive. 

Also read: Rupee hits 80-mark against US dollar in early trade  

Also read: Currency hedging could put more pressure on the Indian Rupee as it hits the 80 mark for the first time