Rupee: 10 changes you can expect

Take a look at the 10 ways a falling rupee can hurt your finances and change your way of life.

 

    Interest rates
    With a weak Indian rupee, it may be difficult for the RBI to cut interest rates at the monetary policy meeting next week. India’s dependency on foreign investors to bring inflows in order to bridge current account deficit is one of the key factors that will be considered for interest rate changes.

   

    Indranil Sengupta, chief economist at Bank of America Merrill Lynch argues that the RBI should cut interest rate despite the weak rupee, reported moneycontrol.com. "Keeping rates high on the ground of defending the rupee, at least will likely only further defer recovery, deter FII equity inflows, delay re-accumulation of FX reserves and depreciate the rupee. A 10% depreciation impacts inflation by100 basis points," he said in a note to clients.

   

 

    Education
    A weak rupee can weigh down your chances of studying abroad. Since students borrow education loans in local currency and spend in foreign currency, you will have to shell out more rupees to buy the dollar which would make accommodation, food and cost of education abroad costly.

   

   

    Travel
    If you are planning to travel while the rupee is weak, you may want to reconsider as air fares will be expensive considering an increase in fuel surcharge. Also, eating out when you are traveling overseas will turn out to be costly because you will end up spending more rupees.

   

    Loans
    Depreciation of rupee will impact loan seekers in a big way. If you apply for a car loan, you will have to pay more depending on where the vehicle is assembled and the components imported by the automobile company.

   

    Oil prices
    Rupee depreciation may prompt oil companies to hike petrol and diesel prices. India is highly dependent on importing oil and companies will have to shell out more money to import crude in dollars.

 

    Inflation
    A weak currency will increase the price of imports which will translate into an increase in the prices of consumer products. Depreciating rupee will also cause an increase in inflation.

    (Photo: Reuters Pictures)

   

    Imports
    A falling rupee makes imports more expensive in terms of rupees. India is a major importer of oil, gold and iron ore among other things, and more money spent on imports will show up in inflation data which in turn will lead to increase in electronics, fuel prices and consumer products.

 

 

   

    Exports
    On the bright side, rupee depreciation will help increase India’s export competitiveness especially with other emerging Asian markets like China and Korea. But, a weak rupee alone may not boost the country’s exports.

 

  
    The Wall Street Journal quoted Duvvuri Subbarao referring to a sharp drop in the rupee's value against the dollar last week. He said, “We need to get export competitiveness by increasing our productivity, by increasing our competitiveness in other ways, not by the exchange rate."

   

 

    Companies
    Considering India’s reliance for raw materials from overseas, a weaker rupee affects the profits of companies. While IT and pharma sector gain from a weak rupee, it might be trouble for aviation.

    Its good news for a few IT companies operating in India because most of the countries tech firms gain revenue from the US, a weak rupee can help them earn relatively more. Pharmaceuticals companies in the doing business in the country will gain when rupee depreciates because they export more than they import. On the other hand, aviation sector will be disappointed with a weak rupee because most of their earnings are in rupees while they spend in dollars.

   

 

    Real Estate
    While the local markets may become bleak, it’s good news for NRIs. Non-resident Indians can purchase a home for a low price because a weak rupee means more value for every dollar they spend. The rupee’s dip against the dollar will help Indians living abroad to purchase properties in their homeland as they can buy more rupees.