Sep 042013

10 Ways The Rupee Fall Affects You:-

1. Less purchasing power: You get less for every rupee you spend. As the rupee declines, so does its purchasing power. Anything you bought for Rs 100 in January is now worth Rs 116 in cost terms alone by the virtue of the drop in the currency. The rupee has slipped by about 20 percent since the beginning of this year.

High interest rates:
Your EMIs for auto and home loans, along with interest rate on fresh loans may go up. As we have seen the RBI has already introduced measures that make it more expensive for banks to borrow money from their central pool. This in turn means the rate at which banks lend to consumer also notches up.

Expensive Fuel:
India is an oil importing country. Most of our fuel firms import oil before refining it and then selling it as fuel at pumps. Any drop in rupee increases the cost burden on oil firms, which may then consider an increase in fuel prices.

Inflation goes up:
India’s inflation figure has a big contribution from commodities and that includes fuel and other commodities. As imports of these commodities go up, the price at which they are being brought into the country will also rise in rupee terms. Eventually this will show up in companies/ value chains that use imported ore, coal, oil or even gold. Finished goods will therefore become more expensive and consumers would be forced to pay more for the same products. This way every drop in the rupee pushes inflation higher.

Indian Students abroad:
Cost of studying abroad shoots up, as suddenly more rupees must be spent for every dollar needed. Assocham released a report saying those planning to go to the U.S. may have to shell out at least Rs 2-4 lakh more for their expenses just because of the sharp fall in the rupee.

Foreign holidays more expensive:
Travelling abroad will be costlier as you will have to pay more rupees to buy the same number of dollars for your vacation.

NRIs benefit:
When the rupee weakens those earning in dollars and other stronger currencies will gain as they get more rupees for the dollars in hand.

Good for export, bad for import:
Importers get directly hit as they are forced to pay more rupees per dollar/pound on importing products. But a sliding rupee always benefits exporters who earn in dollars and therefore will get more rupees for every foreign currency earned. This is why they say that a declining rupee can serve up export advantages. Meanwhile for consumers the government has put restrictions on importing plasma TVs/ gold and other high end commodities.

Deficit dilemma:
Weakness in rupee adds to the rising import bill (via oil, gold or other high ticket products) of the country and widens the current account deficit (CAD). This can add to macroeconomic instability hurting all sections of consumers and the economy.

Hits corporate balance sheets:
Companies across India have borrowed foreign loans at high rates of interest for operations, expansion and investment. Any drop in the rupee makes their interest installments more expensive. Sometimes companies may even pass this on to their consumers by increasing prices of their products and services.




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