Strong inflows help push rupee to a six-month high

Prelims level : Taxation Mains level : GS - III
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The rupee, which has been steadily appreciating in recent days, closed at 69.10 to a dollar, its highest level since August 10, 2018.

Strong inflow in both debt and equity segments helped the currency to hit a six-month high against the dollar. This is the fifth straight week the rupee has closed higher against the dollar.

FII inflows


FII inflows have   crossed ₹30,000 crore in Feb-March’19 till date, resulting in a flood of inflows after 2018 drought. According to data from the National Securities Depository Ltd. (NSDL), FPIs have been net buyers in equities at nearly

₹18,000 crore in the current month, following net purchases of ₹17,220 crore in the previous month.

Rupee Depreciation: 

At present, the value of India’s currency “rupee” is continuously falling and   its   value has declined by 12% between January – September 2018. Among the BRICS nations; after the Russian Ruble, the Indian rupee depreciated the most in this period. Now the exchange rate between the dollar and rupee is hovering around Rs.72.51= 1 dollar.

Devaluation Meaning: When the external value of the domestic currency depreciates while the internal value remains the same, such situation is known as the devaluation of the domestic currency.

The basic difference between the devaluation and depreciation is that, the devaluation is done by the government of the country deliberately while the depreciation take place because of market forces i.e. demand and supply.

At the time of independence; India adopted the Par Value System of International Monetary Fund (IMF). On the August 15, 1947; the exchange rate between the Indian rupee and US dollar was 1USD = 1 INR.

Depreciation of the Indian rupee against the dollar

  1. Increase in the price of the crude oil: As we all know that India produces just 20% crude oil of her requirement and rest is imported from the other countries like Iraq, Saudi Arabia, Iran and other gulf countries. Crude oil is the biggest contributor in the import bill of
  2. Beginning of trade war between the USA and China: The US President Donald Trump has initiated the trade war with China and European countries and India and these countries also retaliated in the same way. So due to this war the price of the imported commodities will go up which will further increase the outflow of dollar from the Indian
  3. Increasing Trade Deficit of India: A situation, in which the import bill of a country exceeds its export bill, is called trade
  4. Out flow of Foreign Currency: It is worth to mention that when the foreign investors find other attractive markets in the other parts of the world; they pull out their invested money by selling the equity shares. But they demands the most respected currency or easily accepted money i.e. dollar. So in such situation the demand of dollar increases which further increases its price.
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