Rupee falls below 80 against dollar, raises worries over imported inflation

Raising concerns over high imported inflation, the Indian Rupee fell below the psychological level of 80 to 80.05 against the US dollar. Although the rupee has depreciated against the US dollar, but it has appreciated against other major currencies such as Euro and the Japanese Yen.

Currencies such as the British pound, the Japanese yen and the Euro have weakened more than the Indian rupee against the US dollar and, therefore the Indian rupee strengthened against these currencies in 2022.

Major reasons for the weakening of Indian rupee against the US dollar are: Global factors such as the Russia-Ukraine conflict, soaring crude oil prices and tightening of global financial conditions , etc.

This year we are likely to have a deficit on the balance of payments. So our capital account inflows are likely to be lower than the current account deficit. One of the cause for this situation in our country is - 'excess of imports on the exports'.

The CPI based inflation has been over 6 per cent for two straight quarters, remaining above the upper limit of the RBI's medium-term target range of 2-6 per cent. Most of the risks to inflation are seen emerging from the crisis in the aftermath of the Ukraine-Russia war. The underlying domestic inflation is driven by imported components like public transport etc. because of higher fuel costs.

The RBI and the government have recently taken several measures which might stem the fall in the rupee.