Indian Rupee Hits All-Time Low Against the Dollar
MUMBAI, India (AP) - The Indian rupee hit a fresh all-time low against the dollar Wednesday, as risk averse global investors wary of India’s twin deficits drowned out central bank efforts to stem the currency’s slide.
The rupee hit 54.44 against the dollar, breaching its prior low of 54.39 set Dec. 15, according to FactSet data. The slide helped send the benchmark Sensex index down 1.8 percent Wednesday.
Analysts said they expect the rupee to soften further, breaking 55 to the dollar, as Eurozone jitters dovetail with growing worries about India’s slowing growth and current account and fiscal deficits.
The Reserve Bank of India sold about $20 billion between September and March to prop up the rupee, but India’s falling foreign exchange reserves limit the bank’s ability to intervene decisively, Abishek Goenka, chief executive of India Forex Advisors, said in a research note Wednesday.
The central bank last week ordered exporters to convert half their local foreign exchange holdings into rupees, a drastic move that analysts said would ultimately have minimal impact on the currency.
"The current account deficit has been increasing since April 2011, with imports rising faster than exports and deficit over balance of payments, supporting the demand for the dollar," Goenka said. "Poor IIP and WPI figures and outflow from the nation has created a path for the rupee weakness. The international factors are also adding to the weakness."
The sliding rupee is fueling a vicious economic cycle, which a growing number of critics say can be broken only by better fiscal discipline and structural reform by New Delhi. Global economic uncertainty has added urgency to those calls for change, as economists say India has less of a buffer to deal with external shocks now than it did in 2008.
The falling currency makes imports - especially of oil - more costly, adding to inflation and worsening India’s deficits, which spooks already skittish global investors. That, in turn, decreases investment and makes it harder for the central bank to cut interest rates, worsening the growth outlook.