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Rupee could be heading towards 80 a dollar if India's central bank does not intercede in the market. Image Credit: Pixabay

Mumbai: India’s rupee tumbled to a record low as the coronavirus pandemic raises risks to the nation’s slowing economy and forces foreigners to pare their holdings in the country’s stocks and bonds.

The rupee declined 0.4 per cent to 74.50 per dollar - an all-time low. The currency, down about 3.1 per cent in March has turned Asia’s second worst performer. India’s benchmark stocks index had entered a bear market on Thursday as foreigners pulled $2.7 billion from the country’s equities this month.

The rupee’s sharp decline, along with the tumble in stocks, threatens to hurt further the nation’s already fragile economy, expected to grow at the slowest pace in more than a decade. The Reserve Bank of India’s efforts to calm the market by announcing $2 billion of the FX swaps on Thursday were not enough to soothe sentiments.

“Past lows are not a line in the sand,” and there is a risk of the rupee hitting 78 and then 80, said Vishnu Varathan, head of economics and strategy at Mizuho Bank Ltd.. Such a big sell-off “will ignite major concerns because of the ability of such moves to exacerbate capital outflows.”

Still on the sidelines

RBI said in a statement on Thursday that it is closely monitoring the global situation and “stands ready to take all necessary measures” to ensure the normal functioning of financial markets. The Indian currency has come under tremendous pressure as foreign investors unloaded $1.2 billion worth of local bonds in March so far on top of their sales of shares, data compiled by Bloomberg shows.