Why is the rupee falling against the dollar?

Abstract

Rupee achieving new lows against the Dollar has been the talking point for the past few months and who else other than RBI Governor Mr. Shaktikanta Das is continuously worried about the worsening situation. He has a scheduled meeting with the Finance Minister Ms. Nirmala Sitaraman over the weekend, about the ongoing downfall and possible steps the government and the RBI can take to arrest the slide. He then calls up his trusted financial analyst for a cup of coffee and assigns him a job of compiling all the factors for this situation and asks him to add suggestions for improving the situation. After the meeting with the RBI Governor, the financial analyst starts analysing the situation and is curious to understand the effects of the recent steps taken by RBI and their potential long-term impact. As RBI has taken advance deliveries of forwards to maintain their forex reserves, how will they be able to tackle a lower inflow in the coming months? Will the temporary hike in foreign deposit rates have a significant effect on the forex inflows? Is the lower forward premium rate a boon for the importers or a potential risk to the Indian Rupee? When should the government start to worry about their increasing current account deficit? The financial analyst started his analysis to find answers to these questions.