On the Depreciation of the Rupee

Post COVID-19, world economies are trying to accelerate their pace of recovery from the slowdown caused by disruption. In the process of generating an economic stimulus, many tools are being used, be it increased money supply, tapering, etc. Adoption of such growth tools is creating some uninvited effects like inflation, depreciation, balance of payments deficit, current account deficit (CAD), and so on. Evidences of such adverse effects can be seen in the form of inflation in countries like the United States (US) and India. The US is facing a four-decade high inflation of 9.11%, which is way above the forecast of 8.8% accompanied with a negative growth in their gross domestic product (GDP) of -1.6% and -0.9% for the last two quarters. To fight both the problems simultaneously, the US Federal Reserve System used the rise in interest rates as a double-edged sword.

Talking about India, it is facing most of its economic odds in the form of inflation, unemployment, depreciation, CAD, etc. India is witnessing a continuous depreciation in its currency with a depreciation of more than 7% in 2022. The currency exchange rate is slated to hit the low point of `79 per dollar and according to the projections of the International Monetary Fund, it is going to depreciate further to `94 per dollar. Although the rupee has been continuously depreciating throughout the period since the adoption of a flexible exchange rate system, the intensity of depreciation in the current times is high compared to what it used to be in the past. Many experts, however, believe that the Indian rupee has not performed that badly in comparison to other currencies.