Just when it appeared that the economy is moving up, the rupee breached the Rs 45-level mark against the US-dollar on Wednesday for the first time since November, 2006.
A weaker currency means lesser purchasing power, which in turn makes goods and services costlier. Result: an already-high inflation may rise further.
The impact would be felt more on products like consumer durables, as they contain several imported components. The raw material cost would go up.
“It goes without saying that the strengthening dollar has substantial impact on our sector. Among the categories to be most badly hit are air conditioners, microwave ovens and colour televisions,” said Suresh Khanna, secretary general, Consumers Electronics and Appliance Manufacturers’ Association.
As per Bloomberg data, the rupee hit a high of 45.18 against the US dollar as oil companies heavily bought the greenback to make the most of lower crude prices. The rupee closed Wednesday at 44.82 per dollar.
Economists interpret the movement as a strengthening of the US dollar rather than the weakening of the rupee.
“It is has been a wide phenomenon and most Asian and even European currencies are weakening against the dollar. Oil companies are heavily buying dollars now that crude prices have come down,” said DK Joshi, principal economist, Crisil.
{{/usCountry}}“It is has been a wide phenomenon and most Asian and even European currencies are weakening against the dollar. Oil companies are heavily buying dollars now that crude prices have come down,” said DK Joshi, principal economist, Crisil.
{{/usCountry}}While near-month contracts in the newly launched currency futures on the National Stock Exchange (NSE) hovered above 45-levels, one-year contracts shot above the 46-level mark, indicating the market’s expectation of further weakening of the rupee.