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The Mighty Fall of Indian Rupee

The Indian rupee has been falling against the US dollar, reaching a record low of 79.03 last Wednesday. And now it reached 80.02, shattering its previous record. Since January this year, the rupee has decreased roughly 6%. Nirmala Sitharaman, the Union Finance Minister, has asserted that the Indian rupee is positioned compared to other world currencies versus the US dollar.

These days, the strong dollar abroad, the high price of crude oil and international capital outflows are the key causes of the rupee's decline. As a result of the Russia-Ukraine war, the global economic downturn, inflation, and high crude oil prices, among other problems, it has been particularly damaged by supply chain interruptions.

The return on the dollar grew in comparison to those in emerging countries like India as the US Federal Reserve recently raised interest rates. The demand for the dollar will be larger than the supply if a nation imports more than it exports, which would cause the indigenous currency, such as the rupee in India, to lose value about the dollar.

The devaluation is anticipated to affect the economy overall, as well as other sectors like imports, particularly the cost of fuel, and drive up inflation. Theoretically, a weaker currency should increase India's exports, but given the current state of global uncertainty and the country's poor demand, this may not be the case. It raises the possibility of imported inflation and may make it challenging for the central bank to sustain historically low-interest rates for a more extended period of time.