Indian Rupee falls against US dollar-VRK100-05Oct2011

Reasons for Indian Rupee's recent fall against US dollar:

Ø      The dollar-rupee exchange rate depends on the supply and demand

Ø      There is shortage of US dollars after the dollar has strengthened against other major currencies, like, euro and pound sterling in the past one or two months. The dollar shortage has spread to India also.

Ø      Foreign Institutional Investors (FIIs) have been selling in the Indian stock markets pushing up the demand for dollars

Ø      Sudden rupee depreciation has forced corporates to go for covering their imports and this has pushed up the demand for dollars to some extent. Typically, exporters try to postpone bringing their dollars to India thinking that dollar will appreciate further against the rupee causing temporary shortage of dollars in the market.

Ø      However, theoretically speaking, rupee should be gaining strength against dollar as Indian economy is expected to do much better compared to the US. Even interest rates are much higher in India than those in the US. The short-term aberration will continue for some time. And the rupee is expected to appreciate against the dollar in the medium to long term.