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Why the rupee is falling against the dollar
September 23, 2008
The growing Indian trade deficit and the large fiscal deficit are also contributing to the fall of the rupee.
The higher price of imported goods, especially oil that is now ruling at over $107 per barrel, has also led to an increase in domestic inflation and a fall in the value of the Indian currency. High inflation and a strong growth in the Indian economy have already forced the RBI to raise interest rates.
The demand-supply balance and the fundamentals are against the rupee
India has seen a large amount of outflows from its financial markets. India is a heavy importer of oil and the current spurt in crude oil prices has impacted the rupee too.
Also, the decline in the value of the rupee has coincided with RBI discontinuing its direct sales of dollars to oil firms in early July.
Image: US Treasury Secretary Henry M. Paulson, Jr. uses a magnifying loop to examine his signature on newly printed $20 bills at the Bureau of Engraving and Printing in Washington, DC. | Photograph: Karen Bleier/AFP/Getty Images
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