Earlier this week, the Indian rupee nosedived 51 paise, hitting an all-time low of ₹77.41 against the US dollar.

SIMPLY PUT: Why is the rupee falling and how it affects your food, education, healthcare and other expenses
Rupee hit a lifetime low of 77.41 earlier this weekBI India

Earlier last week, the Indian rupee had appreciated eight paise after India’s central bank, the Reserve Bank of India, increased interest rates by 40 basis points on May 04, only to tumble further below this week.

100 basis points make one percent.

The rupee has been staggering since the beginning of the year.
SIMPLY PUT: Why is the rupee falling and how it affects your food, education, healthcare and other expenses
Rupee depreciation in last one monthBI India

This depreciating rupee, which is a fall in the value of a currency in terms of its exchange rate versus other currencies, is likely to have a direct impact on your daily expenditure.

Imports now more expensive, while exports are cheaper

With a small dip in the Indian currency, the Indian government has to pay a little extra for the same goods it was importing earlier. So, importing items get more expensive.

Oil imports will get costlier, which has a direct impact on prices of many other things – anything that needs to be transported will (if it hasn’t, already) now see an increase in its prices.

India currently imports 85% of its oil demand and the rise in crude oil prices directly increases import bill and expenses.

Your investment portfolio is likely to be affected

If foreign investors pull out of Indian equities, Indian currency depreciates, leading to a sharp decline in equity markets.

Foreign investors have already pulled out over ₹6,400 crore from the Indian equity markets in the first four trading sessions of May when the Reserve Bank of India (RBI) and US Federal Reserve raised interest rates.

Given the headwinds in terms of elevated crude oil prices, inflation, and monetary tightening (also known as Quantitative Tightening), market volatility is expected to remain high as foreign investors could continue to withdraw funds.

Foreign education could get more expensive

If you are planning to study abroad, you might have to restructure your budget.

You will have to shell out more rupees for every dollar you spend. Simply put, you will have to spend over 21% more in terms of rupee to buy the same number of dollars.

If you budgeted ₹20 lakh for your education abroad, you will now have to increase it to ₹24.2 lakh.

SIMPLY PUT: Why is the rupee falling and how it affects your food, education, healthcare and other expenses
Foreign education will get more expensiveGiphy

International travel now more expensive

During summer, the travel sentiment is high among consumers. As the rupee loses value against the US dollar, your plans to travel abroad will burn a deeper hole in your pocket – like everything, paying for your purchases in foreign currency, moreso the US dollar, is now more expensive than ever before.

A weaker rupee results in expensive imports, and contributes to inflation

India's retail inflation surged to an 18-month high in April, largely driven by rising fuel and food prices and staying well above the RBI's upper tolerance limit for a fourth consecutive month, a Reuters poll found.

As the rupee weakens against the dollar and import prices hike, companies may not be able to absorb this increase in cost and may pass it on to consumers.

Increase in your home loan EMIs and more

To keep inflation in check, RBI resorts to increasing its interest rates. If the RBI expects that inflation will rise beyond its tolerance limit, it hikes the rate at which banks borrow money from the RBI, which is also known as the repo rate.

When repo rate increases, the cost of borrowing for banks also increases, which is passed to their account holders by increasing the interest rate on loans and deposit rates.

Some banks have already announced an increase in interest rates on home loans – HDFC has increased its interest rates for retail home loans by 30 basis points, with the new rates now in the range of 7-7.45%.

But what has caused the decline of the Indian rupee?

The value of any currency depends on its demand in the market. If the demand increases, its value goes up, which is known as appreciation. And if the demand for a currency declines, its value depreciates.

If more foreign investors invest in Indian businesses and projects, the demand for Indian currency goes up. To be able to invest in India, foreign companies have to first convert their currency into Indian rupees. This increase in demand for the rupee strengthens its value against the US dollar.

Recently, more and more overseas investors have pulled out a big chunk of their money from the Indian market, consequently affecting market sentiment and currency’s decline.

SIMPLY PUT: Why is the rupee falling and how it affects your food, education, healthcare and other expenses
Foreign investors have pulled out `1.5 lk cr in 2022 so farBI India

The Federal Reserve has raised interest rates for the first time since 2018, as the US central bank struggles with soaring inflation, the impact of the war in Ukraine and the COVID crisis. As interest rates soar, investors start pulling money out of riskier investments like equities, commodities and foreign markets.

The annual inflation rate in the US is now at 8.3%, which also affects market sentiment. Here’s an explainer by Stocktwits India on how the global inflation rate affects India and what the government is doing to combat it.

Therefore, foreign investors are exiting their investments in India, and shoring up their investments in the relatively safer markets in the US.

On the other hand, when Indian businesses and companies import foreign goods and products, such as crude oil, gold, consumer electronics, among other things, they convert their rupees into dollars, which is the global currency for international trades. If imports exceed exports, demand for the dollar goes up and the rupee weakens against it.

Since India has been a net importer, we import more than we export, the rupee has gradually depreciated over time.

SIMPLY PUT: Why is the rupee falling and how it affects your food, education, healthcare and other expenses
Rupee vs Dollar in the last five yearsBI India

As the upward trend of the graph shows, you had to shell out ₹64 in May 2017 for 1 US dollar. Today, you have to pay ₹77.26 in exchange for a dollar.

To deal with this rupee depreciation, you can reevaluate your investment portfolio and consider companies that have a substantial amount of foreign exchange earnings such as in sectors like pharma, FMCG, and IT.

Here's a short video

SIMPLY PUT: Why is the rupee falling and how it affects your food, education, healthcare and other expenses
Here's what happens when the Rupee depreciatesBI India

Disclaimer: This is not investment advice, it is for informational purposes only.