The Chinese city of Wuhan, China, is said to be the birthplace of the Coronavirus, causing the disease COVID-19, all over the world. Originated from the Latin term ‘’Corona’’, this virus is the cause of fear and death, which is reportedly felt by the people. The fast spread of this virus to all parts of Asia, Europe, and Africa, has led to the WHO released its statement of a rise of the ‘’global pandemic’’. To date, Italy, the USA, China, and Spain, are the worst-hit areas, with the death toll crossing 7000 and more than 1.6 million people affected!
Individuals all over the globe are now panic-stricken. This constant rise in tension is reflected in all areas of the economy, with people losing their jobs, restaurants being shut, companies closing down and laborers running out of food. This virus is causing tremendous side effects on the overall world population, with slowing down the livelihood of people and damaging strong financial developments and economies. Today, markets all over the globe are in a lockdown, with people finding it difficult to get access to common essential supplies!
The impact of COVID-19 on the financial side:
Adopting strategies to keep the economy and financial sector from losing its foundation and collapsing hard, the central banks from all across the world have taken the decision to counter and challenge the current ‘’rate-cut stand’’. Therefore, after some careful analysis of facts, the policy rate has been reduced to zero, which further stops the financial market from stressing out solid and gaining extra impact.
How is India doing its job during the COVID-19 crisis?
COVID-19 till now has not been able to form its strong roots in India. In fact, the damage is less and the areas that have been hit also reported fewer deaths and fatalities. However, the casualties due to the spread of the coronavirus in the country are slowly rising. But the numbers are quite low, in contrast to the worst-hit nations like Spain, the USA, and Italy. Keeping the condition of the virus on one side, the Indian economy, particularly the Indian stock market, has now entered the ‘’bear market phase’’. The fall of the rupee, against the US dollar, changes the whole face of India’s financial expansion and development.
Now, the rupee is no longer seen as a strong currency. The depreciation is massive and has led to an unusual crisis as well. In fact, it is for the first time in history that the rupee recorded the lowest value against the US dollar, only to blame the current global health scenario for this catastrophe.
On the 2nd of March, the rupee reached the value of 72.09, which yet again fell to 74.50 on Friday. On the 16th of March, the opening rupee value was 74.27, causing a depreciation of 2 rupees only for March. Further detail on the value of the rupee is yet to be confirmed!
How did the rupee fall so suddenly?
Analyzing the situation of COVID-19 in India and across the globe, the hardest hit sector in India and abroad is the economy. The real reason for the fall of the rupee today can be blamed on the outflows of the FPI. On the 13th of March, $7 billion was sold in equity, which then, deported the whole monetary value to the country of origin.
In addition to that, the current economic standpoint of the country was shaken. The equity markets no longer held a strong financial graph, which led to a global crash. Hence, they all sold out, leading to the extreme fall of the rupee instantly. Gaining some good cause, the markets found India as one such place, where they earned good amounts of profits, making it their top destination to invest. Today, the picture is slightly different. There is no profit now, but markets groping for money, in order to rise up again.
The impact of the coronavirus had a negative impact, prioritizing the value of the US dollar and leading to the decline or fall of the rupee. India, therefore, has to now fight a dual battle-
- First, with the unprecedented fall of the rupee, where investments from foreign markets are no longer in flow.
- Secondly, the bank situation, where the outflow of enough value is also not recorded.
What is the silver lining present at this present time of crisis?
The novel coronavirus has not only caused a global economic slowdown but has forced countries to a lockdown and left its people to find perfect reasons to stay alive. Seeing that India has already suffered at the hands of the US dollar, the only ray of hope that is coming along the way is the demand or claim for crude oil. The prices for crude oil were sharply falling down, when the OPEC no longer stayed together with Russia, leading to a face to face battle with Saudi Arabia. The value is now low, making it easier for customers to get access to the supply and eventually hiking the production of oil as well.
The drop in the prices of crude oil went straight from 50 dollars to 30 dollars. This sharp fall of the value of crude oil is precious for the rupee, which is why it is said to have created an entirely favorable impact. The Indian markets for domestic oil did not miss an opportunity to purchase and stock up on future crude oil, as against the US dollar, trying to figure out the ongoing oil war between the two countries.
What does the RBI have to say regarding the fall of the rupee against the dollar?
The Reserve Bank of India figured out the current situation of the Indian stock market and the fall of the rupee, due to the impact of the coronavirus. As a result, it thought of utilizing the spot markets for selling the US dollar. Rumor has it that India sold around 1.5 billion dollars, which was later on claimed by experts as false. Later on, it was seen that the RBI created a ‘’swap window’’, gaining rom 2 billion dollars auction, dated as of 16th March!
It is also stated that RBI needs to stand on solid grounds and be a little aggressive, taking the present situation into account. However, RBI is said to have enough forex reserves, which can definitely support the fall of the rupee in the global market against the dollar. But RBI needs to act and it has to start now! RBI plans on becoming stringent with its laws, following the demand of the future rupee value. If the rupee slides from its existing value, the decision should be foreclosed!
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