Rs. vs $

The Indian Rupee hit a 9-year high (39.91) against the mighty dollar on September 21, 2007. It was Rs. 44 a few years back.

Among many other factors, the major boost was the US Federal Reserve’s 50 basis point cut in the Fed rates. As interest rates of any economy decrease, the value of its currency against other currencies also decreases. This is the general principle of economics. Drop in interest rates makes a currency less sought after as the returns decrease. Hence investors move out of that particular country in search of higher returns. Importantly, for India as more and more foreign institutional investors (FIIs) started pumping dollars into the Indian economy the value of the Indian rupee soared.

Tough Time: The appreciating rupee will hurt every exporter having a major part of his income in dollar receivables. A loss of Rs 2 for every dollar earned. Imagine the condition of exporters having millions of dollars in receivables. Indian IT companies (those who have not hedged their dollar receivables adequately or efficiently), textile companies, auto component manufacturers, Indian BPOs will all have a tough time if the Indian rupee continues with its upward journey.

Happy Hours: For travellers and students happy days are here again. They will have to spend lesser rupees for every dollar that they purchase for their vacation or stay abroad. The rates of international tickets will come down as the cost of aviation turbine fuel drops. India imports 70-75 percent of its oil requirement. Even if the cost of oil per barrel has hit a record high of $84 in recent times, the appreciating rupee definitely helps to soothen the harshness of oil price increase. The rupee rise also helps to tame inflation.