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The Fall of the Rupee: Fears of Recession Rise

INDIA: The Indian Rupee (INR) hit an all-time low of 82.14 against the U.S. Dollar. Over the course of the last 24 hours, the value of the rupee has fluctuated due to unpredictable market policy changes worldwide contributing to the ‘biggest annual decline for the Indian rupee since 2013.” Reuters reports that the Indian Rupee concluded last year as “one of the worst-performing Asian currencies.”

The U.S. Federation has ‘aggressively’ raised rates of interest by 425 basis points (bps) to fight against inflation. Due to the higher differential interest rates at the moment, the American crude oil industry is currently facing a crisis, causing an ‘investors’ surge’ from the Indian market into the U.S. market in an attempt to secure higher returns. As a result of the declining Crude Oil global exchanges, much of the oil is being sourced directly from Russia. Within a year since the Ukraine invasion, India has imported $24 billion worth of oil, making it the 4th largest importer of Russian crude oil globally.

According to PK Anjali, an assistant professor of Economics at Christ University, Bangalore, India is already facing a 10 per cent inflation rate. “If it touches 20 per cent and beyond, we will enter a recession period if the import debts are not paid on time,” she added.

Consequently, amid fears of recession, prices across various industries have hiked. Twenty-four hours ago, Mercedes Benz announced an increase in prices from ₹2 lakhs to ₹12 lakhs across different models “to offset rising input costs, especially the adverse impact of foreign exchange”, effective from April 1, 2023. Additionally, Indian steel mills have reported a hike in prices between 2–5 per cent with the average price estimated as ₹61,000 per tonne this March. On the contrary, gold prices are expected to decline, potentially creating a valuable investment opportunity.

The value of the Indian Rupee continues to rise every few sessions, leading to increasing price hikes across every sector of the Indian economy. "It is now widely accepted that while internationalisation and a freer capital account comes with its own set of benefits, it is not without risks," says M. Rajeshwar Rao, Deputy Governor of the Reserve Bank of India. Rao reassures that “The Reserve Bank remains committed to continuously move ahead at a steady pace in line with the changing macro-financial environment - globally and domestically,” he concludes in his keynote address at the 17th FEDAI Annual Conference at Cairo on March 5th.


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Tags: India Inflation Recession Business Rupee Dollar Crude Oil


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