India’s rupee plunged to a fresh record low against the US dollar yesterday over concerns that foreign capital could flow back to the US as its economy picks up.
The rupee, Asia’s worst-performing major currency this year, hit a historic low of 61.51 to the US dollar in morning trade, below its previous low of 61.21 on July 8. The rupee has plunged 12.3 percent so far this year.
Indian shares fell 1.03 percent to 18,983.76 points after the currency hit its new low.
“The rupee is on a runaway train and no one knows where it will stop,” Angel Broking associate director Naveen Mathur said. “This is not looking good for the country.”
Dealers said that the Reserve Bank of India — which is believed to have intervened several times in the past few months to help prop up the rupee — was absent from the market yesterday.
Demand for the US dollar has increased amid speculation of a sooner-than-expected scaling back of US stimulus as the world’s largest economy recovers, analysts said.
Slackening domestic growth, weak exports, rising foreign fund outflows and a high current account deficit have battered the rupee.
The depreciating rupee stokes inflation by raising the cost of everything India imports, from crude oil to chemicals and pulses.
Growth is at a decade-low 5 percent and the current account deficit — the broadest measure of trade — for the full fiscal year ended on March is at a record high, mainly due to huge oil and gold imports and weak exports.
India’s rupee woes have raised speculation that it could be headed for a crisis like the one in 1991, which forced an IMF bailout.
In an interview published last week, veteran economist Arvind Panagariya said that India’s foreign exchange reserves were too low.
The Indian central bank has kept interest rates on hold, prioritizing rupee stability over economic growth, and has given no timeline for rolling back its recent liquidity-tightening measures to prop up the currency.
Last month, the central bank announced a range of measures to bolster the rupee, such as raising short-term interest rates and lowering the amount banks can borrow or lend under its daily limit.
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