Mumbai: India’s rupee slumped to a new record low to the dollar on Tuesday, prompting suspected central bank intervention, amid fears that measures to stabilise it and kickstart the economy will not work.
Asia’s worst-performing currency this year slid to Rs64.13 (Dh3.7) to the dollar in morning trading, past its previous low of 63.22 the previous day.
Two suspected interventions by the Reserve Bank of India (RBI) to sell dollars saw the rupee retrace slightly to 63.19, dealers told AFP on condition of anonymity.
The RBI does not confirm forex market interventions and says it intervenes only to prevent rupee volatility.
The troubles of the rupee, which has slumped nearly 17 per cent against the dollar this year, has spilt over to the stock and bond markets.
Indian shares — which have fallen seven per cent in the past three trading days — slid as much as 1.83 per cent in early trade on Tuesday to a low of 17,970.98 points before recovering to close down 0.34 per cent at 18,246.04.
Rise in yields
The yield on the 10-year benchmark bond hit 9.23 per cent intraday, the highest for over five years, reflecting eroding investor appetite for Indian debt as worries about the economy and potential default mounted.
India’s weak trading sentiment was mirrored across key Asian stock markets, with investors jittery before Wednesday’s publication of the minutes of July’s US Federal Open Market Committee meeting. These may give indications about a possible rollback of the Fed’s massive stimulus programme.
Most emerging market currencies have been hit by expectations the Fed will scale back its stimulus sooner than expected, causing funds to flow back to the United States as its economy recovers.
Dealers said they feared that the rupee could weaken further, and that central bank measures over the past three months would not halt the slide.
“This is a crisis, the sentiment is extremely frail,” said Param Sarma, chief executive with NSP Forex, a forex consultancy.
Inflation on the rise
The falling rupee stokes inflation by raising the cost of everything India imports from crude oil to chemicals and pulses.
There are also growing fears that India will find it tough to fund its gaping current account deficit, which hit a record high last year.
India relies on foreign capital to fund the deficit. But since June 1 — after the US Fed signalled a tapering of its stimulus — overseas funds have pulled out $11.36 billion from its stock and debt markets.
India’s market woes come a day after the World Bank’s chief economist, Kaushik Basu, said the country’s problems were “overplayed” and it was not in danger of a full-blown economic crisis.
While Basu urged the RBI to use its forex reserves to curb volatility, he said it should “not try and buck the trend of the exchange rate”.
Last week, in the latest of a series of steps to prop up the rupee, the RBI tightened controls on the amount of money Indian firms and individuals can send abroad.