Rupee hits another all-time low, but India need not worry yet

• The rupee plummeted to the 72.65 mark today morning as banks and importers continue to buy dollars.
• Continuing to fall against the dollar, the rupee is still appreciating most other currencies around the world.
  
• The cause of concern lies in the fact that most of India’s trade is conducted against the dollar and thus this is having an impact on its current account deficit.

The rupee has been breaking records for a month now by hitting new lows against the dollar each week. Monday morning saw the rupee breach a new threshold hitting the 72.50 mark after opening at 72.10.

That being said, in comparison to other emerging economies, the rupee’s fall hasn’t been all that sharp. It’s only in the comparisons against the Asian nations that the rupee has shown the most weakness, but that’s only because other countries like the Philippines or Indonesia don't even come close to having current account deficits similar to what India has.

Will the rupee continue to fall?

The Turkish lira crisis may be have been where the rupee hit its stride but it had already begun to fall when President Donald Trump initiated his trade war against China. In the latest developments, the United States has plans on engaging Japan as well while its ties with Canada are already volatile back home.

All in all, trade tensions aren’t going to subside anytime soon putting the rupee under continuous pressure that will strain the economy.

Even the United States sanctions on Iran will have a long bearing effect. The move has already led to an increase in the prices of crude oil that is being pushed even further by an increase in current demand for fear of future supply shortages.

India has one of the largest demands for energy in the world. Crude oil is one of its largest imports. Put two and two together and it spells ominous things for the country’s current account deficit.

Should you worry?

Here’s the thing. All the factors that are causing the rupee to depreciate and be under pressure are global, not domestic. That means two things. One, India isn’t the only country that’s going through this. Every country around the world is facing depreciation against the dollar and policymakers need to strategise on how to intervene.

Two, while imports maybe getting more expensive, the rupee’s depreciation is a boon of India’s high-elastic export sector which accounts for 20% of India’s GDP.

Sure, there’s still some room for the rupee to depreciate further and it doesn’t look like the global trade climate is going to cool off any time, but India doesn’t have to start panicking quite yet.