My Rupee
My Indian rupee has thrown a big surprise on Friday when it appreciated by whooping 50 Paise in a day. Against one dollar, Rupee gained from 79.76 to 76.26. There is no credit to the Modi government or RBI for this feat. Earlier they were not to be blamed for the Rupee falling free either. Simultaneously, now sensex is also showing bullish trend and it is at its three-month high. I will venture to dwell upon it in a simple way.
All major currencies had been depreciating against dollar and some very drastically. Even the Chinese currency depreciated. This all happened due to the action taken by Federal Bank of America ( Fed). American economy is suffering from very high inflation. By June end 2022, its annual average inflation was 9.1% which is the highest in the last 40 years. To curb this inflation the Federal Bank of America decided, as all central banks do, to enhance the bank rate. The higher bank rate makes loans costlier and deposits become attractive. This reduces the money supply in the market checking the inflation. Higher bank rate in US also encouraged the international investors to withdraw their investment in dollars from other stock exchanges for taking the advantage of higher interest in American banks. This resulted in the fall of stocks of the world. Also as a result of withdrawal of ubiquitous dollar makes it more scarce in other countries. This pressed the dollar to become expensive and consequently other currencies, including Rupee, depreciated.
Strangely the world is now helped by the slump in American economy in the last two quarters. The American GDP has shrunk in the BBlast two quarters. To boost the economic growth, all central banks lower the bank rates so that people can easily borrow or withdraw money and invest in businesses. Central banks have to balance the conflicting demand of bank rates for controlling inflation and pushing growth. American Fed has declared that it is raising the bank rate by 75 percentage but assured that it will not be raised again so soon. Stocks started hitting their highs after Fed Chairperson Jerome Powell left the door open about its next move at the September meeting, saying it would depend on the data. It is this assurance of not immediate more increase in bank rate that the investment of dollars is slowly trickling back to other countries from America. It is for this reason that the Rupee and all other currencies have started appreciating.
The importance of American economy in the globalised world is self evident. American markets matter to the World- India being no exception.
