In a reply citing RBI data, Finance Minister Nirmala Sitharaman said the value of the rupee against the US dollar fell from 63.33 on December 31, 2014 to 79.41 on July 11, 2022.
Sitharaman said global factors such as the Russian-Ukrainian conflict, rising crude oil prices and tightening global financial conditions were the main reasons behind the rupee’s depreciation against the dollar.
However, other global currencies such as sterling, yen and euro have depreciated more than the Indian rupee against the dollar, so the rupee has actually strengthened against those currencies this year, she said.
Foreign portfolio capital outflows are a major reason for the depreciation of the Indian rupee, the finance minister said, adding that monetary tightening in advanced economies, especially the United States, tends to cause foreign investors to withdraw funds from emerging markets.
Foreign portfolio investors have withdrawn about $14 billion from Indian equities as of 2022-23, she said.
Regarding the impact of currency devaluation, nominal exchange rates are only one of the factors that affect the economy, she said.
A currency devaluation may increase the competitiveness of exports, which in turn has a positive effect on the economy, while devaluation can also affect imports, making them more expensive.
The Reserve Bank of India (RBI) regularly monitors the foreign exchange market and intervenes in cases of excessive volatility. It has raised interest rates in recent months, making holding Indian rupees more attractive to residents and non-residents.
Earlier this month, the Reserve Bank of India raised overseas borrowing limits for companies and eased norms for foreign investment in government bonds, as it announced a slew of measures to boost foreign exchange inflows.
The Reserve Bank of India raised the ECB limit under the automatic route to $1.5 billion per financial year from $750 million or its currency equivalent, and eased regulations on foreign portfolio investments in debt markets.
(input from PTI)