Here's why you need to keep an eye on the exchange rate

How does a falling ruppee affect you?

Here's why you need to keep an eye on the exchange rate

  • September 23, 2015  
  • |  
  • UPDATED   16:32 IST

In the past month, the value of the rupee has fallen over 7 percent.  The Rupee v Dollar conversations are perpetual and it leaves us wondering why the US Dollar is on a pedestal.  Most of us don't worry about the exchange rate unless we're planning a vacation abroad, but it is imperative to know and understand the implications of the value of the Rupee. 

1. Foreign education - For Laya Lakkaraju (24), getting into the University of Albany, New York for a Masters in Health Sciences was exciting news. While there was a new life to look forward to, there was that one thing that worried her - the exchange rate.  When she joined in August 2014, rent was $400, i.e., Rs. 24,620 (Rs 61.55/$). Now, with the falling rupee, her rent has shot up to 26,584 (Rs. 66.37/$) in September 2015. An average meal costs about $8 which used to be Rs. 492 but now the same meal costs her Rs.530. Essentially, an additional sum of Rs.1964 on rent and Rs. 1140 on food. So the loan you borrow in rupees ends up costing you in foreign currency. "I spend about a $1,000 - $1,100 every month. Over the last year, I have had to curb on my expenses like  travel, I walk around mostly now. What used to be a budget of a little over Rs. 61,000 for my parents has now gone up to over Rs.70,000", said Laya

2Vacation - That vacation you've been planning to the US and Europe for years may come to naught, again. While flight ticket rates aren't that expensive, your stay abroad will definitely make up for all the money you've saved on travel.  On the other hand, travel costs to countries such as Malaysia, Thailand and Australia have become cheaper as their currencies too have depreciated against the dollar. So if not Europe and the US you can plan a trip closer home to save cost.

3Remittances - Typically, remittance flow picks up when the currency depreciates. NRIs tend to remit more money back home when the rupee falls to cash in on the price difference. Therefore, those who depend on remittance income stand to gain when the rupee falls.  Experts say with the recent fall in rupee remittances has increased compared to the same period last year.

4Gold -Gold prices appreciates when the rupee weakens against the dollar,  assuming other factors remain constant,. For example:  when gold prices dropped by a massive 35% in September 2011 from its highs of $1,900 per ounce, Indian investors were not impacted much because of depreciation in Indian rupee at the same time. Naveen Mathur, Associate Director Commodities and Currencies, Angel Broking, says, "Dollar denominated prices have come down to $1100 levels, rupee prices have not corrected as much due to the depreciating rupee. We expect the price to come down to Rs 24,500 in the near term but will find some support if the rupee depreciate

5. Fuel - Weakening rupee makes our import costlier. Since India depends on imports for large part of crude oil, a weak rupee shoots up the fuel prices.  But, it is not the only factor that decides the cost. Currently, because of higher crude production in the US,  crude prices have fallen globally. As a result despite weakening rupee fuel prices are lowering down in India. Dhramkirti Joshi, Senior Economist at Crisil says "Right now the consumer is shielded as many commodities and oil that we import has seen an internal price fall much sharper than rupee depreciation."