Rupee hits all-time low against dollar with slowdown in Indian economy
MUMBAI - The Associated Press
The Indian central bank is struggling to defend the value of the rupee as investors are fleeing to the euro, according to analysts. AFP photo
The Indian rupee plunged to an all-time low against the dollar yesterday as global demand for dollars and India’s darkening economic picture swamped out central bank efforts to staunch the decline.
The rupee hit 52.73 to the dollar, breaching its March 3, 2009 low. Slowing growth, a swelling current account deficit and waning investor interest in India are adding to pressure on the rupee amidst a global scramble for dollars as investors flee the euro.
A weaker rupee drives up the cost of imports, including oil, which accounts for much of India’s import bill, aggravating inflation and the growing current account deficit. It also strains Indian companies that did not forsee such a sharp swing and failed to hedge their dollar exposure.
The central bank was quick to lay blame on “global dynamics,” in particular Europe’s sovereign debt crisis, and did not rule out intervention.
“We are watching the market,” Reserve Bank governor D. Subbarao told reporters. “Our policy remains the same which is to manage volatility in the exchange rate and to insure the exchange rate movement does not impair our macroeconomic stability.”
Analysts say the central bank has been buying rupees in recent days. India runs a trade deficit, making it more vulnerable to foreign capital flows. The currency has plunged about 18 percent this year, making it the worst performing major currency in the region. Indian companies have raised about $30 billion of foreign debt this year, which will cost $5.4 billion more to repay because of the rupee’s unanticipated fall, according to SMC Global Securities