Rs. hits historic low as rate cut hopes fade, prices shoot up
The rupee closed at a record low of 53.97 to a dollar on Monday — hammered by global economic concerns, rising domestic prices and fading expectations of interest rate cuts. HT reports. Big fall | Inflation climbs to 7.23% in April: Pranabbusiness Updated: May 15, 2012 08:18 IST
The loss of 33 paise on Monday was triggered by investor sentiments being dashed by higher than expected domestic inflation of 7.23% in April. Higher inflation will discourage the RBI to announce further interest rate cuts in its monetary policy review in June.
A depreciating rupee will make studying and travelling abroad costlier as buying dollars become expensive.
“It does become more expensive for my father, but I can’t leave the course midway, even though a couple of my batch-mates have dropped out as they could not bear the increased expenses,” said 19-year old Sarjak Sheth, who is pursuing a four-year business administration course at Indiana University in the US.
For Sheth — who has completed the first year of the course that costs $42,000 a year — the fall in rupee from Rs 45 to a dollar last August to Rs 53.97 on Monday will result in a more than Rs 3.5-lakh additional cost.
A further fall in rupee value will imply that the rupee will breach the 54.30 level touched on December 15 during the intra-day trade. But it recovered later to close above 54 on the same day.
“If the assessment is that the rupee depreciation is being caused by temporary fluctuation of capital flows, reserves must be used in order to see that the impact is not felt on the rupee," chairman of the PM’s economic advisory council C Rangarajan said in the Capital.
The depreciation will also make imported gadgets, such as iPhones and laptops, costlier, besides pushing up crude oil prices. An increase in petrol and diesel prices, as is widely expected, will further stoke inflation.
"Due to the weakening of the rupee against the dollar, importing components has become more expensive. We will have to review the situation and if this trend continues, we might go for a price hike after June," Godrej Appliances vice-president (sales and marketing) Kamal Nandi said.