India’s free-falling rupee hits new low

MUMBAI - Agence France-Presse

Women walk past a garland made of rupee notes for sale at a market in Srinagar. AP photo

The Indian rupee plumeted new depths yesterday, sinking to a record low against the dollar for the third successive day amid turmoil on global markets.

The Indian unit fell to 54.82 against the dollar in early trade, below its previous low of 54.58 hit a day earlier, before clawing back to 54.75 by mid-morning.

Regional shares and currencies fell after Moody’s downgraded 16 Spanish banks on May 17, while poor U.S. manufacturing data heightened concerns over the global economy. Domestic woes are also hurting the Indian unit, analysts say.

“The rupee is in a free fall. Unless the RBI (Reserve Bank of India) and the government take major steps to boost sentiment, there are more worries ahead,” said Abhishek Goenka, chief executive of India Forex, a consultancy firm.

Traders said they expected the rupee to fall further in coming days with risk aversion hitting global markets and sentiment souring over India because of its gaping trade and current account deficits, slowing economy and political logjam.

India’s central bank is suspected to have intervened on May 17 to help prop up the rupee in one of more than a dozen recent occasions it has sold dollars to help slow the decline of the currency.

External reasons
Finance Minister Pranab Mukherjee this week blamed the deteriorating international climate for the falls as international investors sell risky emerging market assets and retreat to safe havens.

Other emerging currencies from Indonesia to Brazil have also been hit.

But analysts say India’s domestic problems are also significant factors, namely stubbornly high inflation, strained public finances and the deficits.

Foreign investors have also been turned off the country of 1.2 billion people due to recent regulatory moves by the government, which has stalled on a pro-growth reform agenda aimed at opening up the economy. The rupee was Asia’s worst performing currency in 2011, losing more than 20 percent of its value in the calendar year.