A day before yesterday, Fed signaled hike in Interest rates, which in turn sudden fall in INR/$, what might be the possible reason behind such decline ??
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If Fed will hike the Intrest rates then the FII will find it better or safer to invest in US because they will get high Riskfree rate so they will pull out their money from Indian markets as a result of which they will demand $ and sell ₹ to convert their funds into $ from ₹ as a result of high demand for $ it will appreciate and ₹ will depreciate.
Sounds good, but why this theory applies in Indian scenario only, as there were no sharp fall in other currencies, despite of that few currencies take upward move after this decision rolled out. I think hike in interest rate might not be the sole factor but can be one of the factor. According to you, what might be the other factors that contribute in currency depreciation or appreciation? like PPP, IRP etc.
This not only applies to Indian scenario. All other Important currencies also depreciated GBP,EUR,JYP against US$ even Gold took a hit. Look just after the news how $ index climbed https://in.tradingview.com/symbols/TVC-DXY/
Agreed. All important currencies depreciated, but i think that can’t be the sole factor for currency depreciation, because if you consider one more factor let’s say inflation then also currency would have been depreciated. India’s CPI has breached its ceiling limits many time in recent past, which can be attributed to such INR depreciation because if there is inflation then INR will fall according PPP. It would be treat to watch what RBI will counter this , as reverse repo could rise more in coming month to decrease supply of INR in system considering if there will be third wave of COVID.