The weakening rupee effect explained! How travellers & students can safeguard themselves

Ananth Reddy

Its foreign holiday season and the time when students also go abroad for studies, and the sudden weakening of the rupee against major currencies would wreak havoc on carefully planned budgets.

The depreciation against the US Dollar has been about 5%, Euro: 6% & British Pound: 8%!

Especially when our government has been demonstrating excellent performance indicators for our economy, it may seem a little bewildering to see our currency depreciating instead of appreciating when otherwise negative news is coming in from abroad.

I hope to demystify this scenario for the general public and hopefully help in better planning of forex spends. Unfortunately, one can expect the current rates to be the new-normal. This is because a weaker currency is overall better for our economy as it boosts exports – and with this objective the RBI & Finance Ministry have specifically refrained from intervening to support the rupee at old levels.

The primary factors for rupee depreciation seem to be the interplay between:

- Oil prices – rising prices have resulted in higher payments for oil imports

- US interest rates – rising rates have made it more attractive for foreign investors to keep funds domestically, resulting in net FII outflows

- Domestic inflation – expected as a result of higher support prices for farmers which will boost liquidity in the economy

- Impending global trade war triggered by US policies – which has resulted in lower imports by developed countries, adversely impacting emerging countries where most products are manufactured.

Travel abroad is, however, a discretionary expense, and rising cost can be mitigated to a large extent by:

- Avoiding the US & Europe for a while and travel East, to countries whose currencies too have depreciated

- Travelling budget and staying at cheaper hotels. Choose more home-stays and bed-and-breakfasts

- Planning itineraries more carefully & strategically spending. Prevent further cost escalation by paying for the entire package in advance.

- Opting in for prepaid forex cards. These will safeguard you against drastic forex fluctuations as the forex will be fixed on the day you load the card and will not be subject to market changes.

- Students, if you are looking to make a wire transfer to pay for your university tuition fee, consider a Forex card instead as it allows you to freeze on forex rates immediately versus being subject to the rupee’s spiralling costs.

So don't let the higher rates derail foreign travel plans! Happy travels!