MUMBAI: India’s rupee hit a record low of 57.54 against the dollar on Monday on growing demand for 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 dollar on June 28 last year. On Monday it fell 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 seven percent against the dollar in May, 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 programme 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 59-60 level to the greenback by the end of 2013.
“The weak bias is going to continue,” Goenka said.
Analysts and traders will now watch for any possible intervention from the central 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 under five percent of gross domestic product 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.
“Foreign institutional investors in India have been pulling out money, mainly from the debt market.”
The RBI has a policy of not commenting on movements in the forex market and has a stated policy of intervening only to curb volatility.
Analysts say the bank cannot intervene heavily to buttress the currency as it must retain enough foreign reserves for imports. Right now, it only has sufficient reserves for seven months of imports - the lowest cover in 13 years.
With traders expecting more cuts in interest rates to spur the economy, possibly at the central bank’s June 17 meeting, the currency is facing relentless pressure as lower rates usually translate into a weaker exchange rate.