Re falls to 64.13 perdollar, a new all-time low before RBI steps in
Reuters Mumbai, August 20, 2013
First Published: 09:08 IST(20/8/2013) | Last Updated: 11:29 IST(20/8/2013)
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The Indian rupee slumped to a record low in early trade on
Tuesday and bond yields hit another five-year high as Asia's
third-largest economy bore the brunt of growing money flows out of
emerging markets.
The rupee slumped as much as 1.6% to 64.13 to the dollar, adding to
its 2.3% rout on Monday, before traders said the central bank was seen
stepping in to sell dollars.
Markets are bracing for further losses, with 1-month non-deliverable forward trading at 64.71.
A spate of measures by the central bank and government has failed to
halt the slide, with liquidity tightening measures aimed at making it
harder to short the currency pushing up borrowing rates and battering
corporate and investor sentiment.
The BSE Sensex index of shares fell 1.2% to an 11-month low. JPMorgan
downgraded Indian equities to "neutral" from "overweight", citing
strain in the country's balance of payments, while Citi lowered its
Sensex target to 18,900 from 20,800.
"India's problems are nowhere near resolution because New Delhi has
not done anything - there is no focus on improving productivity,
infrastructure or getting FDI (foreign direct investment) back," said
Nomura credit analyst Pradeep Mohinani in Hong Kong.
"It's all about stemming the flow of currency and that is not the cause of the problem," he said.
Late on Monday, the Reserve Bank of India increased the foreign
direct investment cap in asset reconstruction companies to 74% from 49%.
Earlier on Monday, India banned the duty-free import of flat-screen TVs from August 26.
The 1-month onshore forward rate for the rupee was at 64.47 while the
offshore non-deliverable forward was at 64.71, an unusually wide gap
that reflected bearish overseas bets against the partially convertible
currency.
Emerging market currencies have been under growing pressure from
outflows amid expectations the US Federal Reserve will soon start to
wind down its super-easy money policy, possibly as early as next month.
Indonesia's rupiah, Brazil's real and South Africa's rand have also
been in retreat as investors eye those countries that are most
vulnerable to an exodus of foreign capital.
Weak growth
Prime Minister Manmohan Singh's weak coalition government, heading
into national elections by next May, has been hamstrung from pushing
through reforms to attract more long-term capital.
The rupee's plunge adds to worries about India's ability to fund a
record high current account gap and whether finance minister P
Chidambaram will be able to meet his goal to pare the fiscal deficit to
4.8% of gross domestic product (GDP) this fiscal year.
Rating agency Moody's said that while the rupee depreciation was a
new variable for the economy, the factors underpinning it have been
incorporated in its investment grade rating for India.
India is at the lowest investment-grade sovereign rating.
"We believe that meeting the fiscal deficit target will be very
challenging this year, given lower than anticipated growth holding back
revenue growth and steep rupee depreciation raising the subsidy bill on
imported goods," analyst Atsi Sheth said in an e-mailed reply to queries
from Reuters.
Bond yields remained at pre-Lehman Brothers-crisis levels for a
second straight day. The benchmark 10-year yield was up 20 basis points
at 9.43%.
Sensex slips below 18K level
Meanwhile,
the BSE Sensex dipped below 18,000 level falling 336.54 points, or
1.79%, to 17,970.98 points in morning trade on sustained selling,
extending losses for the third straight day, as rupee plunged to fresh
lows amid a weakening trend overseas.
All sectoral indices led by
financials and realty trading in negative territory with fall up to
3.08%. Sensex had lost over 1,060 points in the previous
