Depreciation of Rupee | 30 Oct 2020

Recently, the Indian rupee depreciated below the 74 levels against the US dollar.

The rupee depreciated by 16 paise to settle against the previous low of August 73.87 against the US dollar.
The rupee depreciation is on account of global risk aversion. The investors are preferring a stable US dollar over rupee.
- Under risk aversion, an investor prefers lower returns with known risks rather than higher returns with unknown risks.
The US dollar is advancing not only against the rupee but also against major currencies due to the surging Covid-19 cases.
The escalating Covid-19 cases in Europe has stoked fears across markets that fresh lockdowns would further hit the already fragile economic recovery.

In a floating exchange rate system, market forces (based on demand and supply of a currency) determine the value of a currency.
Currency Appreciation: It is an increase in the value of one currency in relation to another currency.
- Currencies appreciate against each other for a variety of reasons, including government policy, interest rates, trade balances and business cycles.
- Currency appreciation discourages a country's export activity as its products and services become costlier to buy.
Currency Depreciation: It is a fall in the value of a currency in a floating exchange rate system.
- Economic fundamentals, political instability, or risk aversion can cause currency depreciation.
- Currency depreciation encourages a country's export activity as its products and services become cheaper to buy.