10 Reasons why Rupee at 60 per Dollar Means deja vu 1991 Situation

The Indian rupee touched Rs.60 per dollar on Thursday amid news from Washington DC that the US Fed may taper its Q3 monetary easing policy with improved economy.

Since India is dependent on foreign capital inflows to fund its current account deficit, the tumbling rupee may mean both good news and of course, bad for the import-depedent economy.

Here are some reactions we can foresee in the near future with the tumbling rupee:

1. Rupee at Rs.60/$ may mean more current account deficit driven by huge oil imports.
2. No rate cuts in RBI interest rates and banks will be under pressure to tighten loans.
3. Huge withdrawal of money by FIIs is visible in the next few days.
4. RBI may pump in more dollars now to stabilize the rupee and outflow of forex again.
5. Petrol and Diesel prices may shoot up again in less than a month.
6. Loans will become dearer now and interest rates may remain constant or even go up.
7. Foreign remittances may triple in the next two months as NRIs may prefer to send money home with the falling rupee increasing their purchasing power in India, especially in buying fixed assets like homes and land.
8. Foreign visits may go up drastically with people lured by high dollar rate wish not to miss the opportunity.
9. Indian government may go abroad to raise dollar-tied bonds as it did in the past, say in 1991.
10. Companies which deal in dollars and not hedged their transactions will face more outflow and imbalance in their financial estimations.
11. IT sector will benefit hugely from the dollar-based income from abroad and save more on rupee-based salaries to their employees in India.

12. Above all, inflation is going to bite everybody that anti-government sentiments may go up soon and Congress may loose elections in 2014.



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