Explainer: Why the rupee is steeply falling against the dollar

The rupee has crashed nearly 4.2 per cent over the past three weeks to hit a nine-month low of 75.4 against the US dollar.

From trading at 72.38 to USD on March 22, the rupee slipped to 75.42 on Tuesday (trading hours). The rupee has been one of the weakest emerging market currencies over the last three weeks. In the same period, only the Turkish new lira has lost more than the rupee as it declined 4.36 per cent against the dollar.

Government Bond Buying Programme

RBI Governor Shaktikanta Das’s April 7 announcement of a government-securities acquisition programme (G-SAP), starting with ₹1 trillion in the current quarter (April-June), has put pressure on the rupee. The government will print money to buy these securities, which will lead to more rupees in the system than before.

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In the past the government has been printing money to buy bonds. However, the April 7 announcement formalises that process.

Rising COVID Numbers

Rising COVID numbers — more than 1.6 lakh daily cases — have prompted several states to consider stringent lockdown measures. The economy was showing signs of recovery before the second wave of the pandemic hit. Lockdowns will likely hit consumer activity and dampen market and consumer sentiment. On Tuesday Moody’s Investors Services said the second wave presents a risk to its growth forecast of 13.7 per cent for FY22.

“The announced countermeasures to combat the second wave – some of which are due to remain in place at least until the end of April – risk weakening the economic recovery. However, the targeted nature of containment measures and rapid progress on vaccinating the population will mitigate the credit-negative impact,” it said.

Besides, the strengthening of dollar in line with expectations of better growth in the US economy has also put pressure on the rupee.