Profile
Settings
Refer your friends
Sign out
Why in News:
- Heightened geopolitical tensions in the Persian Gulf and a widening Current Account Deficit (CAD) have triggered significant capital outflows and depreciatory pressure on the Indian Rupee.
Comparison: Depreciation vs. Appreciation of the Rupee
Feature | Depreciation | Appreciation |
Definition | A fall in the value of the Rupee relative to foreign currencies (e.g., USD) in a market-determined system. | A rise in the value of the Rupee relative to foreign currencies in a market-determined system. |
Market Trigger | Occurs when the demand for Dollars exceeds the supply (often due to capital flight or high import bills). | Occurs when the supply of Dollars exceeds the demand (often due to high FDI/FPI inflows). |
Impact on Exports | Positive: Indian goods become cheaper for foreign buyers, potentially boosting export volume. | Negative: Indian goods become more expensive abroad, making exports less competitive. |
Impact on Imports | Negative: Essential imports like crude oil and gold become more expensive, widening the trade deficit. | Positive: Imports become cheaper, which can help in cooling down “imported inflation.” |
External Debt | Increases the burden of interest and principal repayments for companies with foreign loans. | Decreases the cost of servicing external commercial borrowings. |
Policy Response | RBI may sell Dollars from reserves or raise interest rates to attract foreign capital. | RBI may buy Dollars to prevent excessive strengthening that could hurt exporters. |
