Currency depreciation is a fall of a currency in a floating exchange rate system. Rupee depreciation means that the rupee has become less valuable with respect to the US Dollar. Recently, The Indian Currency dropped to a record low of 79.80 against the US Dollar. When a currency’s demand declines, its value decrease and thus Depreciation occurs. When the value of a currency increase, it is called appreciation.
Factors that lead to appreciation and depreciation of Rupees are Trade Surplus, Export-Import, Inflation, supply & demand, Trade deficit etc. When a country buys more goods and services than it sells to other countries, the demand of that currency will go down, leading to depreciation.
Russia-Ukraine conflicts, soaring crude prices, aggressive rate hike by us Federal Reserve and other Central Banks, fall in the Indian Forex reserves and record inflation in the US are the present factors of falling rupee. Depreciation leads to drive away foreign investors from equities and FDI, Higher oil & gas which further has cascading effects, Increment in CAD, lower the Purchasing Power Parity, Unemployment & Inflation.
Reserve Bank of India liberalized norms to boost inflows of foreign exchange, including doubling the borrowing limit under the external commercial borrowing route. Self-sufficiency can help in countering depreciation. Focus should be on export led growth. Temporarily, depreciation will help India to export more goods and services.
