In this article, we will discuss Depreciating Indian Rupee (Reasons). So, let’s get started.
Reasons for the Decline
- Rising Covid Cases:
- Rising Covid-19 cases have emerged as a key concern. As several states are now considering more stringent lockdown measures, market participants are concerned over delay in the recovery of the economy, which was hit hard in 2020-21 by the pandemic.
- Strengthening of USD:
- The strengthening of USD in line with expectations of better growth in the US economy, has also put pressure on the Rupee.
- Reserve Bank of India’s (RBIs) G-SAP:
- RBI’s announcement of Government Securities Acquisition Programme (G-SAP) programme to infuse liquidity has also put additional pressure on the Rupee.
- This is being read as a sort of quantitative easing policy the global central banks had followed, in which the RBI will support the government’s elevated borrowing programme through infusion of liquidity.
- Decreasing FPI Investments:
- Another factor that is putting additional pressure is the decreasing support of the Foreign Portfolio Investors (FPIs), who pumped huge inflows into Indian equity markets between October 2020 and February 2021.
- While the FPIs invested a net of Rs. 1.94 lakh crore between October 2020 and February 2021 (in the Indian markets), in the month of April 2021 they have pulled out a net of Rs 2,263 crore (till date).