The news has spread negative sentiments in forex market
The Reserve Bank of India came under the line of heavy fire as Indian Rupee plunged as low as 68.8350 per dollar yesterday, which marks the biggest fall against the dollar since August 2015. The news has spread negative sentiments in the forex market as many investors fear to lose significant chunk of their investment.
Subsequently, Indian Prime Minister, Narendra Modi, announced his plans on 8th November to demonetize Rs 500 and Rs 1,000 notes in a bid to get rid of black money and funding of terrorism through fake currencies. However, many industry gurus believe that it was an unprepared move since it back fired as it resulted in a cash crunch which puts the poor and middle sections of the society in a big difficulty.
Moreover, it is worth noting that the Indian currency opened almost 22 paise down at 68.78 when compared to dollar on account of buying American dollar by importers and banks. Adding to that, at 1.10 pm, the Indian currency was trading approximately 26 paise low at 68.83. Also, considering the fact that the Indian economy is largely dependent on cash, it would not be wrong to assume that the consumer spending will certainly take a severe hit since the local citizens are left without paper currency to perform their daily transactions.
Anindya Banerjee, associate vice president currency derivatives, Kotak Securities said, “FPI flows have turned negative since the US election. Rising US bond yields and strong dollar overseas is a major headwind for an EM currency like rupee. At the same time, falling interest rate differential post demonetization and concerns over growth, is adding to the pressure on the local currency. A range of 68-69 is seen on spot.”
In any case, the government of India is facing many criticism from the citizens because of the poor execution of demonetization plan nationwide. Also, the drop in currency not only causes families to suffer as they did not get time to settle their finances, but ATMs and banks also ran out new currency notes.