Amid depreciation of the rupee against dollar, Finance Minister Nirmala Sitharaman said in the Lok Sabha on Monday that global factors such as the Russia-Ukraine conflict, soaring crude oil prices and tightening of the global financial conditions, were the major reasons for the weakening of the Indian rupee against the US dollar.
She added that another reason was that the foreign portfolio investors have withdrawn about $14 billion from the Indian equity.
Sitharaman said that currencies such as the British pound, the Japanese yen and the Euro have weakened more than the Indian rupee against the US dollar and therefore, the Indian rupee has strengthened against these currencies in 2022.
The depreciation of a currency is likely to enhance export competitiveness which in turn impacts the economy positively. The depreciation also impacts the imports by making them more costly.
The Reserve Bank of India (RBI) regularly monitors the foreign exchange market and intervenes in situations of excess volatility. The Reserve Bank of India has raised interest rates in the recent months that increase the attractiveness of holding Indian rupees for residents and non-residents.
She said that the recent measures taken by RBI include the Exemption of Incremental Foreign Currency Non-Resident (Bank) and Non-Resident (External) Rupee (NRE) deposits from the maintenance of CRR and SLR up to November 4, 2022.
The outflow of foreign portfolio capital is a major reason for the depreciation of the Indian rupee. Monetary tightening in advanced economies, particularly in the US, tends to cause foreign investors to withdraw funds from emerging markets. Foreign portfolio investors have withdrawn about $14 billion from Indian equity markets in FY 2022-23, she said.