Due to the US-Iran war, the pressure on the Indian rupee is continuously increasing. On Monday, the Indian rupee closed at ₹95.23 against the dollar. After this war that started at the end of February, the rupee has fallen by almost ₹ 5 in just three months, which is going to have a direct impact on your everyday life, household budget and investments. Rupee reached record low in 3 months of war. After Russia-Ukraine, now the direct impact of the ongoing tension in the Middle East is visible on the Indian currency. When the US-Iran war started on February 28 this year, the rupee was around ₹91 per dollar. After this, the rupee declined due to rising crude oil prices, continuous withdrawal of money from the market by foreign institutional investors (FIIs) and strengthening of the US dollar. Due to this, the rupee reached a record low of ₹96 per dollar on May 21. PM Modi’s appeal, save foreign exchange reserves Prime Minister Narendra Modi has recently made a special appeal to the countrymen to improve the health of the rupee and keep the country’s foreign exchange reserves safe. PM Modi has urged citizens not to buy gold for the coming one year, avoid traveling abroad and reduce the consumption of petrol, diesel and gas as much as possible. Kitchen budget will deteriorate, fruits and vegetables will become expensive. According to Anindya Banerjee, Head of Commodity and Currency Research, Kotak Securities, the impact of rupee’s fall will reach common families in three different ways… Losses to paint, aviation and chemical companies in the stock market. Weak rupee is also increasing the pressure on your investment portfolio. Sectors that are dependent on raw material imports – such as aviation, chemicals, paints, oil marketing companies (OMCs) and electronics – suffer the most. Now they have to spend more rupees to pay in dollars, which will affect their earnings and profits and the shares of companies will fall. According to Anindya Banerjee, the share of aircraft fuel (ATF) in the operating cost in the aviation sector has increased to 55-60%, which was earlier 30-40%. Also, these companies have to pay lease rent and maintenance in dollars. Similarly, crude derivatives and titanium dioxide constitute almost half of the raw material cost of paint companies, which will increase their expenditure. Those investing in IT, Pharma and gold bonds will benefit. On the other hand, there are some sectors which benefit from the weakening of the rupee. Big IT services companies like Infosys, TCS and Wipro and pharma exporter companies like Sun Pharma and Dr. Reddy’s will get big support from their dollar earnings. Apart from this, textile, gems and jewelery exporters will also benefit in the global market. Due to currency weakness and rising international prices, those investing in Gold ETFs and Sovereign Gold Bonds (SGB) will get double profits. Experts advise that retail investors should not panic and exit the market in this period, rather rebalance their portfolio towards export companies and 5-10% gold. The budget for foreign travel increased by 20%, domestic travel also became expensive. Traveling abroad has become very expensive due to the fall of the rupee against the dollar. Now we have to pay more for flight tickets, hotel booking, shopping and eating there. For example, if you budget $5,000 for a trip to America, earlier at the rate of ₹80 it used to be ₹4 lakh, but now at the rate of ₹96 it will increase to ₹4.80 lakh. The falling rupee also affects domestic tourism. When aviation and transport companies suffer losses due to rupee weakness, they increase the prices of air tickets and hotel rates even within the country. EMI of banks may increase due to increase in inflation, education also becomes expensive. India buys 85% of its crude oil requirement from abroad. When inflation starts increasing in the country due to oil becoming expensive, the Reserve Bank of India (RBI) has to intervene and increases the repo rate. As the repo rate increases, banks increase loan interest rates, due to which the EMI of floating rate home and car loans increases. Although, there is no such situation in India right now, but this crisis may arise in future. Apart from this, tuition fees, hostel and living costs of Indian students studying abroad have increased significantly when converted into rupees, due to which they have to take top-up loans. Banks are charging around 3.5% forex markup and GST on credit card spending in foreign currency. However, NRIs who earn in dollars while abroad and are repaying loans in rupees in India have to pay less money in comparison to dollars. What should common people do in the current situation? What is FII and repo rate?
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Rupee hits record low in 3-months of war: Know- how does it affect your daily expenses, investments, travel and EMI?
