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Rupee breaches the 70 mark: How it's bad, and how it's good.


Date: 14-08-2018
Subject: Rupee breaches the 70 mark: How it's bad, and how it's good
Indian rupee hit a record low of 70.07 a dollar on Tuesday. In its sharpest single-day fall since September 2013, the rupee had hit an all-time low of 69.93 on Monday despite the Reserve Bank of India's intervention as heavy sell-off in global currencies, including Turkish lira, fuelled demand for safe haven assets. The rupee has lost nearly 7.2% this year and remains one of the worst performing emerging market currencies. 

An ET poll in June had said rupee could touch 70 to the US dollar by December-end amid global policy uncertainties. Nearly three-fourths of the respondents believed the local unit could touch 69 to the dollar with some even pointing to 70 by December-end. 

Now there are apprehensions of the rupee sliding to even 80. Peter Brandt, a widely-followed chartist and the CEO of Factor LLC, believes the worst is not over for the rupee and sees the Indian unit falling to 80 per dollar level if it breaches the crucial level of 71. "Technically, should the rupee climb above 71, then we see the rupee going to 80 within four to six months. There could be a 10-15% run on the rupee," he told ET. 

How it's bad 
A weak rupee against the dollar makes imports costlier. Some imports cannot be cut down such as oil, which can negatively affect India's current account deficit. In a vicious cycle, a depreciated rupee makes oil costlier since its India's chief import. Costlier oil means costlier vegetables and groceries since transportation costs go up. Weak rupee also makes education and holidays in foreign countries more expensive. The goods that use imported components such as computers, smartphones and cars also get more expensive. All import-based industry and trade suffers. 

How it's good
A weak rupee is good for exporters since they get more money for their exports. All export-based industry benefits from a weak rupee. For example, information technology and pharma companies benefit from a weak rupee since most of their revenues come from foreign countries. 

Source: economictimes.indiatimes.com

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