Rupee Crash: Although the Indian economy is in a strong position, global market conditions are creating problems for the local currency. The rupee continues to weaken against the dollar. Now Kotak Securities has come up with an estimate that has raised the market’s anxiety. According to Anindya Banerjee, head of research at Kotak Securities, the rupee may touch the 97 level against the dollar soon. Once the 97 level is broken, the fall will be deeper. After this the rupee may go to the level of 98.5 to 99. Currently, the rupee has fallen to 96.442 against the US dollar. There are several important reasons behind this decline.

Heavy selling by foreign investors

Selling by foreign institutional investors (FPIs) is the biggest pressure on the rupee. Looking at this month’s figures, foreign investors have sold nearly $6.1 billion worth of Indian stocks so far. Banerjee says that nearly 90 percent of the money invested by foreign investors in the Indian market in the last two months has now been withdrawn. Recently, money has also flowed into the country through FCNR(B), but it has not directly benefited the rupee. Instead of going to the market, this money has gone directly to RBI’s forex reserve.

Rising crude oil prices

Crude oil is another major reason for the poor health of the rupee. It should not be determined by Brent crude price alone. In fact, along with spot crude, freight charges, prices of refined products are also very important. Currently, there are problems in refineries around the world. Due to which the prices of diesel to aviation fuel have been high. When India’s fuel import bill increases, it has a direct impact on inflation. Due to higher fuel prices, costs for businesses as well as the general public increase, putting further pressure on the rupee.

RBI’s next big move

If this decline in the rupee continues like this, the Reserve Bank of India (RBI) will have to intervene. RBI may increase its intervention in the currency market if the pressure increases. Apart from this, Banerjee hopes that the RBI may also increase the interest rates in the coming months. Rates are likely to increase in the month of December as well. However, the RBI will not take its decision just by looking at the US Federal Reserve. The Reserve Bank’s main focus will be on keeping domestic inflation under control. Keeping inflation in mind, maintaining a positive real interest rate will be RBI’s priority.

Stress due to US bond yields

A bad news is coming from America not only for India but for the markets of the whole world. Long-term bond yields are rising rapidly in the US. Bonds with maturities of 10 years or more are particularly under pressure. Big US tech companies are borrowing heavily, which has increased the demand for funds in the market. For this reason, long-term yields are likely to remain high. This pressure on global yields will continue unless crude oil prices decline. Global growth is affected due to higher yields, due to which the rupee is also suffering the direct consequences.