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Why the rupee is falling against the dollar

September 23, 2008

Text: Rediff Business Desk

These are extraordinary times. Analysts have described the events of the last few days as the worst financial crisis ever to have hit the world. Imprudent financial decisions, fed by greed and bad luck, have seen global financial markets collapse. The bankruptcy, sale, restructuring and merger of some of the world's largest financial institutions has caused cataclysmic disruptions in the international stocks and money markets.

In such a scenario, how could India have escaped unhurt? The global crises saw Indian stock markets crash, but as soon as the United States funneled in $700 billion into the American economy to revive dying markets, India too saw some stability. However, the forex market was a totally different ball game.

Even as the dollar strengthened, the Indian rupee began to fall alarmingly. The Indian currency has fallen to the lowest level in almost two years. At a low of 46.99 to the dollar this year that it hit on September 16, the rupee lost almost 18 per cent against the US currency!

To put things in perspective, the rupee was trading at about 39.40 to the dollar in January this year.

So why is the rupee falling against the dollar, when the global financial crisis should impact the United States the most?

There are several reasons. Analysts say these are the reasons for the fall of the rupee. . .

Image: People coming out of a foreign currency exchange shop. | Photograph: Aamir Qureshi/AFP/Getty Images

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