The dollar gains strength against the Indian rupee means bad news for your personal finances

Against the US dollar, the Indian rupee fell to around Rs 81.50 from around Rs 73.21 a year ago, a drop of around 9.5%! In other words, over the past 12 months, the dollar has appreciated by 9.5% against the Indian rupee. The US Fed is expected to continue raising rates in the US in 2022 and possibly as early as 2023, which has contributed to the decline in INR against the dollar since January and may continue to do so.

Why is it called the weakness of the rupee against the dollar? Here is why in 2017 you had to pay 64 rupees to buy a dollar, but now you need more than 80 rupees, reflecting a lower INR. This also shows that the INR has depreciated by almost 5% on an annualized basis against the dollar. On the other hand, a stronger rupee means you need less Indian currency to buy dollars than before.

Your personal finances are affected both directly and indirectly by a falling or weaker rupee. There are also effects on the economy, good and bad. Exporters stand to gain when the INR drops, but since India is primarily an import-dependent nation, the consequences of a low INR are more serious.

The rising cost of some commodities and the resulting inflation is an indirect effect. Since India is a major oil importer, the impact of a weakening INR extends to other commodities as well. Imported goods are becoming more expensive and hence weakening INR is one of the factors currently contributing to rising inflation. The cost of items increases due to an increase even in imports of consumer goods components.

This also has an indirect effect as your loan EMI increases at a time when the INR depreciates. When inflation rises, the RBI uses tools like the repo rate to try to control it. Increases in repo rates cause interest rates to rise, which increases the cost of borrowing. Commercial and retail borrowers would now pay higher EMIs and borrowing fees than in the past. On September 29, RBI raised the repo rate again by 50 basis points, bringing the total rate hike in 2022 to 190 basis points.

Sending dollars for international education will be expensive unless you have registered INR in a foreign account. To protect against lower INR, international students should ideally keep money in foreign bank accounts.

The cost of taking your family on an international vacation will increase. If the dollar has strengthened, there will be a greater outflow of rupiah when you trade INR to buy dollars through banks, credit cards, etc.

To read also: The INR crosses 81! The depreciation of the rupee against the dollar works in favor of these investors

Here’s how to protect your finances against the rising dollar

The long-term weakness of the INR against the USD may take some time to reverse. If you plan to send your children to a foreign school, you may consider buying US stocks or putting money in a foreign bank account. The Liberalized Remittance Scheme of the Reserve Bank of India (RBI) governs remittances made abroad. All residents, including minors, are permitted to freely transfer up to USD 2,50,000 per financial year (April to March) for any legal current or capital account transaction, or a combination of both, under the liberalized cash transfer program.

Also read: 3 good reasons to suggest the bear market is far from over

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