Reason for this, Petrol import covers 30-40% of our total import. In the last one year, due to Russia-Ukraine war, prices of oil and gas has sky rocketed. India's import bill is getting higher.
Oil is traded in USD.
Import high, export less means demand of USD is high, demand of INR is less.
So, despite such negative condition, INR is fighting bravely.
And performing well against other currencies.
Now, let me tell the reason why Dollar is sky rocketing.
Reason is US federal reserve rate that was 0 in Feb 2022 is now at 3.5%.
Now understand this.
American banks need to maintain a fixed amount to US Fed bank and for that, on daily basis.
They keep taking loans from other banks at interest rates on that loan which is called Federal Interest Rate.
When Fed increase that interest rate then all investors of the world, take out money from their current investment and invest into US Fed bank because investment in Fed bank is considered the safest investment in difficult situation.
You can invest in fed bank only in USD, so you need USD and therefore the demand for USD invreases and prices of USD goes high and it was exactly this that had happened in the last 6 months.
Why fed increased interest rate?
To control the inflation as interest goes high.
Interest rate of savings account, FD also increased, credit card, home loan interests go high.
People stop spending and start investing, circulation of money goes down in the market, demand goes down and prices come down.
Basic economics!
My take
This is what the strengthening of the Dollar has done, globally and the rupee is holding its fort well!
Tailpiece.
Got up at 6, the chores and was ready by a quarter to 10.
Kala and Unni fetched up from Kayamkulam for a darshan and then to clear the air with me.
The maid had turned up soon after the guests had left.
Shut down 'The Quarterdeck' systematically as we limbered up for tomorrow's journey to Raj Nivas.
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