Why rupee is falling? Flow chart to understand. The causes, The results, Important to remember

Why rupee is falling? Flow chart to understand. The causes, The results, Important to remember

Why rupee is falling?

Rupee is at record low.  Everybody wants to know why this happens. 

I would like to explain the facts in a flow chart, so that it is very very simple to understand.

1. FIIs started investing in India, because their jobs market was worst.

2. US central bank proposed for Quantitative Easing 3 Process, means, printing more dollars ($) and bring into circulation.

3. This results in increasing inflation in USA.  Hence the real interest rate will be negative.  That is why gold was also increased.

4. Hence, they started investing in India where interest rates were attractive. They purchased Indian Government Bonds.

5. Now, US jobs market is showing good improvement, new jobs are being added every week by week.

6. This lessens the chance of implementing the QE. Means inflation will come down and interest rates will be high.

7. Hence they resorted to selling in Indian Bond markets.

8. Selling in domestic markets means they get sale proceeds in Indian rupee, they sell INR and purchase $Dollar.  This selling pressure cause fall in INR value and appreciation in USD.

I hope this is clear. I would like to depict the same information in charts so that its more easy to understand.

1. FIIs started investing in India, because their jobs market was worst.

UNITED STATES NON FARM PAYROLLS Non Farm Payrolls in the United States increased to 175 Thousand in May of 2013 from 149 Thousand in April of 2013. Non Farm Payrolls in the United States is reported by the Bureau of Labor Statistics. Historically, from 1939 until 2013, the United States Non Farm Payrolls averaged 118.38 Thousand reaching an all time high of 1114 Thousand in September of 1983 and a record low of -1966 Thousand in September of 1945. Nonfarm payrolls is an employment report released monthly, usually on the first Friday of every month, and heavily affects the US dollar, the bond market and the stock market. Current Employment Statistics (CES) program from the U.S. Department of Labor Bureau of Labor Statistics, surveys about 141,000 businesses and government agencies, representing approximately 486,000 individual work sites, in order to provide detailed industry data on employment, hours, and earnings of workers on nonfarm payrolls. This page includes a chart with historical data for the United States Non Farm Payrolls

2. US central bank proposed for Quantitative Easing 3 Process, means, printing more dollars ($) and bring into circulation. The more money in circulation, the less value for currency.

3. This results in increasing inflation in USA.  Hence the real interest rate will be negative.  That is why gold was also increased. People consider investing gold is good hedge against inflation.

4. Hence, they started investing in India where interest rates were attractive. They purchased Indian Government Bonds.

5. Now, US jobs market is showing good improvement, new jobs are being added every week by week.

6. This lessens the chance of implementing the QE. Means inflation will come down and interest rates will be high.

7. Hence they resorted to selling in Indian Bond markets. Indian bond market rates were falling.

INDIA GOVERNMENT BOND 10Y India's Government Bond Yield for 10 Year Notes declined 35 basis points during the last 30 days which means it became less expensive for India to borrow money from investors. During the last 12 months, India government bond yield declining 1.12 percent. Historically, from 1994 until 2013, India Government Bond 10Y averaged 9.3 Percent reaching an all time high of 14.8 Percent in April of 1996 and a record low of 5.0 Percent in October of 2003. Generally, a government bond is issued by a national government and is denominated in the country`s own currency. Bonds issued by national governments in foreign currencies are normally referred to as sovereign bonds. The yield required by investors to loan funds to governments reflects inflation expectations and the likelihood that the debt will be repaid. This page includes a chart with historical data for India Government Bond 10Y.

8. Selling in domestic markets means they get sale proceeds in Indian rupee, they sell INR and purchase $Dollar.  This selling pressure cause fall in INR value and appreciation in USD. They started investing in thier own country. The following chart evidences the bond rates increasing in USA.
   
    

The global market for the rupee now clocks a turnover of $70 billion a day. To make a significant dent in the price, RBI would need to trade at least $3-7 billion per day. These are large numbers that would quickly exhaust reserves or distort reserve money.

Please write to  indianinvestorswelfareclub@gmail.com for further information.