Most of the global currencies are depreciating against the US Dollar as it is seen as a safe haven asset in these turbulent times. One of the most important functions of a Central Bank is to optimise interest rates, inflation, GDP growth, employment, liquidity and the currency exchange rates. High inflation, debt and currency volatility is a venomous cocktail, ask people of Venezuela, Pakistan, Sri Lanka, Turkey, Iran, and a host of other South Asian and European nations. Rupee could be volatile in the short term but should remain fairly stable beyond the next 6 months, once the current global turmoil subsides as most of the Central Banks are trying to fix their economies. India is one of the fastest growing economies and is likely to be one of the favorite destinations for FII and FDI investments. IT services and other remittances remain relatively strong, which has greatly helped in reducing the CAD. However, with a healthy Forex Reserve position (USD 601 billion as of last week), RBI governor is reasonably confident of India sailing through this storm with relative calm. India’s CAD is expected to deteriorate in the FY 2022 to 3% of GDP on account of increased import bill for Gold, Petroleum and other commodities. CAD is defined as the shortfall between the money flowing in on exports, and the money flowing out on imports. ![]() ![]() The recent Rupee depreciation is on account of FII portfolio outflows and a higher Current Account Deficit. Indian Rupee at 78.29 has made an all time low against the US Dollar, but by and large it is a stable currency, which has been progressively depreciating to factor in the traditionally high inflation in the economy.
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