Indian rupee fails to halt tailspin

Dubai - If fall continues unabated, it would have far-reaching consequences to a nation facing current and fiscal deficits

The Indian rupee on Thursday hit a new all-time low of 70.40 per dollar, or 19.18 per dirham, recording a 9.3 per cent plunge so far this year.
The fall of Asia's worst-performing currency came despite upbeat projections by the International Monetary Fund that the third-largest economy in Asia would grow by 7.5 per cent this fiscal year after a 6.7 per cent rise a year earlier.
A wider trade deficit, along with outflow of foreign funds and global cues, including the escalating US-Turkey trade war, hammered the rupee to a fresh record low during the morning session on Thursday.
However, at 10:45am, the rupee recovered to 70.23 against the greenback on the back of an apparent intervention by the Reserve Bank of India.
The rupee's tumble this year has already led to a surge in local prices of goods with an imported component. July was the ninth straight month in which India's inflation was higher than the central bank's medium-term target of four per cent.
Analysts are of the view that if the rupee tailspin continues unabated, it would have far-reaching consequences to a nation facing current and fiscal deficits.
Equally worried are companies that have raised funds overseas are worried about the rise in servicing costs. The country's external debt rose to $530 billion at the end of March, out of which nearly 42 per cent constituted debt maturing by March 31.
India's merchandise trade deficit widened to $18.02 billion during July as against $11.45 billion in the corresponding period the previous year, as per the latest data released by the Ministry of Commerce and Industry.
An analyst said India's widening trade deficit had triggered the latest tumble. Even though the Turkish lira has recovered, the dollar index continues to move higher. The rupee is expected to remain under pressure in the next few sessions.
Most currency experts believe that even if the rupee appreciates, the appreciation would not sustain for long due to global uncertainty. US sanctions and tariffs on Turkey has had an impact on the rupee and other emerging market currencies over fears of further global protectionist measures.
On top of all these, outflow of foreign funds from the Indian equity and bond markets has had an adverse impact on the rupee.
On Tuesday - the previous trade session - provisional data with exchanges showed that foreign institutional investors sold scrip worth Rs3.788 billion.
Even the Indian equity market was subdued as the rupee plunged.
The Sensitive Index of the BSE, which had closed at 37,852 points on Tuesday, opened lower at 37,796.01 points. At the National Stock Exchange, the broader Nifty50, quoted at 11,390.35 points, down by 44.75 points or 0.39 per cent just after opening.
Money markets across the world have been hit hard with investors wary of spread of the currency rout in the Turkish lira.
Emerging markets like India, Russia, South Africa and China have been significantly affected, with investors looking towards the safe haven of the dollar.
- issacjohn@khaleejtimes.com

• Gold and Forex
• India