Guest Column: Rachit Chawla, Founder & CEO, Finway Capital
Rupee continues to drop against dollar since January 2018. The market analysts call rupee overvalued and predict that it may reach up to Rs 70 per dollar, possibly, by the next year. Rupee is losing its value and becoming one of the weaker currencies in foreign exchange markets. Such volatility is the result of an increase in oil imports as well as hike in crude oil prices. Not only this, the significant rise in US bond yields since the last one year with around 82 basis points has increased the overall demand of the dollar. Notably, the current US bond yield is more than 3 per cent. Thus, more investors are being lured to US treasuries weakening the currencies of emerging markets. Indian currency is one of them. However, according to currency analysts, the Indian yields are higher if compared to other nations, but the attrition in the market value of rupee is the reason why Indian yields are not attracting a lot of investors.
Changing paradigm and its repercussions on personal finance
The current market condition further intensified as RBI’s monetary policy committee recently announced an increase in the key repo rate by 25 basis points to 6.25 per cent. Taking the increasing inflation and oil prices on the account, we might get to see another 25bps hike within this year. But, the committee is somewhat sure that the economic growth of the country won’t be affected by the key repo rate hike. On the other hand, the ongoing trade war, domestic food inflation, and sloppy foreign investments are to continue, bringing down the value of rupee.
In such a scenario, how weakening Indian rupee is going to impact investments is a concern for many. The drop in rupee is bound to keep bond yields higher and enable the authorities to increase the interest rates. Higher the interest rates are, attractive the bonds are to foreign capital. But, as the interest rates increase, the net asset value (NAV) and the returns on long-term debt funds may go down. Not only this, but also the impact of higher interest can also be seen on the government bond schemes in NPS. Higher home loan EMIs, medical compensation and travel expenses will let the common man down.
How to mitigate the impact of weak rupee
People who will bear the major brunt of currency devaluation are foreign travellers, students studying abroad, and Indian patients taking treatment/health services from foreign hospitals. Though the impact of weaker rupee is evident on these groups, a more strategic spending can reduce the impact on their expenditure. Let’s follow some suggestions one by one.
To cut short the foreign travel expenses, tour operators consider it a smart choice to book the tour in advance and pay early. The forex component covers accommodation, meals, sight-seeing, and other perks other than simply the ticket bookings. Many prefer paying the forex component later, and a few pay the complete package in advance. By following the latter one, one can definitely save costs during the foreign travel. Further, reducing the number of excursions, days to be spent and carrying pre-paid travel cards will also help.
Students living abroad do not get any leverage on the tuition fees. At times, the tuition fees must be paid before the commencement of semester in many universities. The drop in rupee is surely a trouble for them. Therefore, they can pay the complete fee of the programme whenever the exchange rate goes down. The students aspiring to study abroad should first look for the scholarships and part-time jobs to balance their fee and expenses. They can also opt for suitable education loans which increase the loan amount per semester with the increase in the semester fees. ISIC cards, specifically made for the students, can be availed when travelling and shopping at the stores.
Medical insurance is a necessity as a slight hike in the costs of medicines or consumables will put a dent on patients’ pocket. In hospitals, the costs of AC, flooring, and other facilities may increase due to the drop in rupee. This too shall be added to the patient’s bill. Going abroad for medical treatment again requires a hefty amount of money. Opting for health and medical insurance is an intelligent move.