Tue, Jun 11, 2013 - Page 15 News List

India’s rupee hits new low against strong greenback

AFP and Bloomberg, MUMBAI, India

A cycle rickshaw driver waits for customers outside a market in Siliguri, India.

Photo: AFP

India’s rupee hit a record low of 57.54 against the US dollar yesterday on the back of growing demand for US dollars among oil importers, while the greenback was also boosted by upbeat US jobs data.

The partially convertible rupee hit its previous low of 57.32 against the US dollar on June 28 last year. It fell yesterday to a new record low before trading up slightly at 57.49 later in the morning.

The fall is the latest blow to the damaged growth story of India, Asia’s third-largest economy, which has been beset by sharply slower growth, worsening public finances and political turmoil.

The rupee depreciated 7 percent against the US dollar last month, similar to other Asian currencies.

“The dollar strengthening is hurting the rupee,” said Naveen Mathur, commodities and currencies associate director with Angel Broking, who said the Indian currency unit showed “continuous weakness.”

With the US economy improving, there is growing debate that the US Federal Reserve could “reverse” its monetary stimulus program sooner than expected.

Analysts fear that the slide for the rupee is unlikely to slow down.

Abhishek Goenka, chief executive of consultancy firm India Forex Advisors, expects the rupee to hit the 59 to 60 level against the greenback by the end of this year.

“The weak bias is going to continue,” Goenka said.

Analysts and traders will now watch for any possible intervention from the Reserve Bank of India to stem any further weakening of the currency.

The widening of India’s current account deficit — the broadest trade measure — to just below 5 percent of GDP in the last financial year from 4.2 percent the previous year has also weighed on the rupee.

The weaker currency makes imports costlier — especially of foreign oil on which India relies heavily — and will stoke already-high consumer inflation.

“The rupee, of late, has been hit more than other currencies,” said Pradeep Khanna, managing director and head of FX trading at the Indian unit of HSBC Holdings PLC.

“Foreign institutional investors in India have been pulling out money, mainly from the debt market,” he added.

New Delhi may plan to further relax rules for overseas investors buying sovereign debt in a bid to boost capital inflows amid the rupee’s decline, two Indian Ministry of Finance officials with direct knowledge of the matter said.

The Indian government may scrap the need for foreign funds to buy bidding permits while allowing them to purchase directly when there is an offering, emulating a mechanism used to sell corporate bonds, the officials said, asking not to be identified before a public announcement is made.

At present, foreign investors need to acquire permits to enable them to buy rupee-denominated government securities.

The officials said the proposed move to change the rules was prompted by requests from foreign investors, who wanted them to be simplified.

In recent months, New Delhi has reduced a levy on foreign investments in local bonds and opened up the retail and aviation industries to more investment.

Indian Minister of Finance Palaniappan Chidambaram has traveled to major financial centers including New York, London and Tokyo this year, meeting institutional investors and spearheading efforts to attract foreign capital.

Overseas investment in India’s government and corporate debt has dropped by US$2.5 billion since touching a record high of US$38.5 billion on March 21.

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