Indian rupee falls to record low, then recovers
India’s rupee slid to a new record low against the dollar on Monday as the greenback was boosted by stronger than expected US jobs numbers.
The currency hit 61.20 rupees to the US unit — moving past its previous low of 60.76 rupees on June 26 — as worries mount that the US Federal Reserve will reduce its stimulus programme that has prompted investor flows into emerging markets.
The Indian currency recovered in afternoon trade amid reports that the central Reserve Bank of India likely sold dollars through state-run banks to prop up the ailing rupee, dealers said.
The currency closed on Monday at 60.62 rupees to the dollar.
“There was possible [RBI] intervention at 61.02 rupee levels,” said Param Sarma, chief executive at NSP Forex, a forex consultancy firm in Mumbai.
Current account deficit
Prime Minister Manmohan Singh will meet industry leaders on July 29 to discuss the rupee’s fall and ways to close the country’s gaping current account deficit, the broadest measure of trade, India’s Economic Times reported.
The current account deficit — which stems mainly from huge oil and gold imports and weak exports amid the global economic downturn — hit a record 4.8 per cent of GDP in the fiscal year to March.
The rupee has also been dragged down by the sharply slowing economy.
“Sentiment is extremely fragile for the rupee. Strong US economic data is driving the dollar up [and weakening the rupee],” said Sarma.
The Indian unit’s tumble raises import prices of everything from oil and fertilisers to food staples such as pulses, stoking already high consumer inflation and causing hardship for India’s poor.
“The government and central bank need to take immediate measures to tackle the situation,” said Abhishek Goenka, chief executive with IndiaForex, an advisory firm.
Weak local share markets have put additional pressure on the rupee as overseas funds sell Indian stocks amid expectations of weak corporate earnings.
Indian shares ended down 0.88 per cent at 19,324.77 points on Monday.
Foreign investors have been pulling out funds from India — as well as from other emerging markets — since June as they look for stronger returns in the United States and elsewhere.
The rupee has fallen nearly 12 per cent against the dollar this year, making it the worst performing currency among major Asian economies.
The Reserve Bank is believed to have intervened several times in the market in recent weeks, but governor Duvvuri Subbarao said the priority was managing volatility. The central bank does not normally comment on whether it has intervened in the market.
The central bank’s governor said last Thursday that the Reserve Bank of India does not have an exchange rate target for the rupee.