The Indian rupee has suddenly witnessed a sharp fall on Friday as it crashed past 89 per US dollar.
This drop is one of the steepest declines that has taken place since May and has also created concern across the overall financial markets.
The fall also came as global investors moved away from all risky assets and shifted their money into the domain of the US dollar, which became stronger due to the various kinds of global uncertainty and even the rising interest rate expectations.
Currency traders have also said the rupee came under heavy pressure just because of the foreign investors who were selling Indian assets.
When foreign investors were the one who pull out their money, the demand for the dollar increases and then the rupee becomes weaker.
At the same time, the global oil prices remain high, and India also needs to import most of its oil. Higher oil prices thus lead to an increase in the demand for dollars and put more pressure on the rupee.
Experts have also pointed out that rising US bond yields made the dollar more attractive to the whole global investor. This caused more money to flow out of emerging markets like India.
The weak global market sentiment also added to the fall, and the rupee thus moved past the 89 mark very quickly.
The Reserve Bank of India (RBI) is also the one which is closely watching the situation, but traders have also said the central bank may not intervene heavily unless the volatility becomes too high.
RBI usually steps in such a situation to control sudden movements in the currency, but it also tries to let the market adjust naturally.
A weaker rupee will also make imports even more expensive, especially fuel, electronics and essential goods.
This could also increase inflation in the coming weeks. However, exporters may benefit slightly because they will receive more rupees for every dollar they earn.
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