The Indian rupee has depreciated by 10 per cent in 2018. Tuesday's session marked the rupee sliding to as much as 70.10 against the American currency.
JP Morgan's emerging markets foreign exchange index is on track for its biggest monthly fall in six years. The Turkish currency crisis has strained emerging market currencies such as India. Traders are now anxious over the Turkish crisis spreading its impact over the world economy. The inflation in the country is at nearly 16 per cent compared to 4.17 per cent in India in the month of July.
In the last two reviews, the RBI had raised the key repo rate by 0.25 per cent each on inflationary concerns. Later, it recovered some ground after the ænance ministry assured steps to rein in the crisis.
Similarly, current account deficit (CAD) has reached 5 per cent of Gross Domestic Product (GDP) in Turkey against 2 per cent in India. High CAD is bad for the economy as it indicates an outflow of money from the country leaving behind no surplus.
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According to reports, heavy sell-off in global currencies, including Turkish lira, fueled demand for safe-haven assets and caused the rupee to nosedive.
The rupee crashed to record low of 70.09 during the day on global concerns over Turkey's economic woes which have impacted various emerging markets amid the USA dollar gaining strength against other currencies.
The currency crisis in Turkey, which had a massive impact on Asian markets on Monday, began after President Recep Tayyip Erdogan asked citizens to exchange gold and dollars into the lira as the country's currency dropped almost 19% due to worsening relations with the United States.