A blowout inflation print from the US and the prospect of a recession have analysts in a tense huddle over the Indian National Rupee's (INR) descent.
CPI inflation in the US came in at 9.1% in June, higher than a consensus estimate of 8.8%. Following the hot reading, analysts are now betting that the Federal Reserve may hike by a full point later this month following its larger-than-usual move in June.
Analysts fear that a slowdown in the world’s biggest economy is bound to exacerbate the pressure from outflows. The Rupee has already fallen over 6.5% this year amid fears of a global recession and deteriorating external balances fuel outflows.
The Indian rupee hit a record low against the dollar for a fourth straight session. While the Reserve Bank of India (RBI) has taken measures to reduce the slide, traders and strategists expect the Rupee to touch levels of 80 to the dollar in the near future
India being an import-dependant country, could feel the heat of a falling Rupee in an inflationary environment as it stands to further impact the spending decisions of households. Concerns around inflation have impacted expectations and as such, the second-round effects would prolong the pricing pressures.
As payments for imports are made in dollar terms, a weaker Rupee would drive up the price of importing goods.
Overall, a weaker Rupee might just give an impetus to inflation in the short term. Be it electronics, or packed food items (where oil is needed), consumers will have to shell out that much more for products which are imported either in whole or just their components.
Those remitting money abroad from India will have to spend more as the Dollar strengthens and the Rupee weakens. The US $ has pushed higher and is currently hovering around the highest level in over two years.
Studying abroad is set to get expensive as well as the fee amount is bound to increase post-conversion.
Source Name:-Economic Times