Rupee slumps to record low on single day, 58.16

The rupee on Monday slumped to a record low of 58.16 against a dollar. In a single day, the rupee fell 110 paise from its previous close of 57.06 against the greenback on Friday.

This raised fresh concerns about India’s bloating current account deficit and a further spike in inflation for a country which imports 80 per cent of its oil requirements.

 This is the biggest slide in the value of the Indian currency in the last two years, triggered by concerns that the US may withdraw from quantitative easing or the monthly $85 billion bond-buying programme.

The slide in rupee dragged down the bonds and most stocks as investors feared that the Reserve Bank of India may not ease the monetary policy in its mid-quarter review next week.

The government stepped in to soothe the fraying nerves early in the day, but to no avail. “The panic in the market is unwarranted as the drop is in line with other counterparts,” said Economic Affairs Secretary Arvind Mayaram.

Mayaram also said that the rupee will find its own level soon and there was no need for any intervention at the moment. Chief  Economic Advisor Raghuram Rajan said the government was taking measures from time to time to stem gold import and curb the current account deficit.

The RBI was seen intervening to stem the fall of rupee during the day, but traders said it was too early to know the central bank’s action.

The dollar strengthened against most of the Asian currencies including Yen, Ringit and Rupiah.

Long term impacts

Reacting to the development, M Rafeeque Ahmed, president of Federation of Indian Export Organisations, said: “This kind of volatility may be good in the short term but would impact long term interest of exporters.”

Analysts said Indian bonds will remain subdued as the currency’s sharp fall is likely to pressure inflation and make the RBI focus on external stability.

“Rupee may test the 60 to a dollar level in coming months,” Harish Galipelli, head of Commodity and Currency Derivatives at JRG Wealth Management Ltd, told Deccan Herald.
The fall in rupee also fuelled fears of capital outflow, especially in the wake of the US treasury yields turning more attractive.

Meanwhile, India is also planning to further relax rules for foreign investors buying sovereign debt in a bid to boost capital inflow.

Fall since January

-India    (-4%)
- Singapore    (-2.2%)
- Malaysia    (-1.2 %)
- South Korea     (-4.7)
- South Africa     (-11%)