Indian rupee hits new low despite bank intervention

MUMBAI: India’s rupee slumped to a new record low against the dollar, prompting suspected central bank intervention, amid fears that measures to stabilize the currency and kickstart the economy will not work.
Asia’s worst-performing currency this year slid to 64.13 rupees to the dollar in morning trading, past its previous low of 63.22 the previous day.
The plunge was believed to have led the central bank to intervene twice in the foreign exchange market to sell dollars for rupees, dealers said.
The suspected intervention lifted the Indian unit slightly but it still ended the day at a new lifetime closing low of 63.25 rupees to the dollar.
The RBI does not confirm forex market interventions and says it intervenes only to prevent rupee volatility.
The troubles of the rupee, which has fallen nearly 17 percent against the dollar this year, has spilt over to the stock and bond markets.
Indian shares — which have lost seven percent in the past three trading days — slid as much as 1.83 percent in early trade to a low of 17,970.98 points before recovering to close down 0.34 percent at 18,246.04.
The yield on the 10-year benchmark bond hit 9.23 percent 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 were expected to give indications about a possible rollback of the Fed’s massive stimulus program.
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 US 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 of NSP Forex, a forex consultancy.
Finance Minister P. Chidambaram told parliament a number of government steps had been taken to stem the rupee’s decline including reducing imports of non-essential items such as gold.
“The government’s piecemeal efforts to bolster the rupee and promote financial stability are having the perverse effect of driving confidence lower, with results completely contrary to the government’s goals,” said Anjalika Bardalai, senior analyst at Eurasia Group, a global political risk research firm.
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 that 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, as part of steps to prop up the rupee, the central bank tightened controls on the amount of money Indian firms and individuals can send abroad.