INDIA: Indian rupee hits record low, posing challenges to economy and new chief of central bank

Record ID: 380297

  • Title: INDIA: Indian rupee hits record low, posing challenges to economy and new chief of central bank
  • Date: 8th August 2013
  • Summary: MUMBAI, MAHARASHTRA, INDIA (AUGUST 08, 2013) (REUTERS) EXTERIOR OF HEADQUARTERS OF RESERVE BANK OF INDIA, THE COUNTRY'S CENTRAL BANK VEHICLES ON A NEARBY ROAD SIGNBOARD READING, 'RESERVE BANK OF INDIA' IN HINDI FINANCIAL EXPERT, SUNIL SHAH, SPEAKING TO PERSON (SOUNDBITE) (English) FINANCIAL EXPERT, SUNIL SHAH, SAYING: "India's current account deficit ballooned beyond cont
  • Embargoed: 23rd August 2013 13:00
  • Keywords:
  • Location: India
  • Country: India
  • Topics: Economy
  • Reuters ID: LVA96F77OI2JJLKJGGXGGM48H7FA
  • Story Text: As the Indian rupee fell to record lows on Thursday (August 08), some investors saw it headed towards the mid-60s against the dollar, a reflection of weak economic fundamentals and expectations the government will have to struggle to implement meaningful measures to reverse capital outflows.
    The rupee closed at 60.88/89 per US dollar, marking a 10 percent fall so far this year - the worst performer in emerging Asia in currencies. Over two years, it is down 26 percent.
    A record high current account deficit at 4.8 percent of gross domestic product has made India particularly vulnerable in an emerging markets sell-off sparked by anticipation the U.S. Federal Reserve will soon wind down its ultra-loose monetary policy.
    Those problems include heavy dependence on oil and gold imports, high inflation and political and bureaucratic gridlock that deter capital investment.

    "India's current account deficit ballooned beyond control mainly due to high crude oil price and higher import of crude oil. Generally India imports 75 percent of their energy needs by buying crude oil. So the demand for dollar by the oil marketing companies was huge and second is was the obsession of Indians for gold," said financial expert, Sunil Shah, in Mumbai.
    Internationally, the US dollar has dried up as its economy is recovering.

    "International reason is that US economy has started reviving and they stopped stimulus Q3. So the supply of dollar will dry down," added Shah.
    One of the first tasks confronting former International Monetary Fund chief economist Raghuram Rajan, who takes over at the helm of the country's central bank on September 05, will be whether to continue the Reserve Bank of India (RBI's) liquidity tightening steps.
    The measures have failed to stem the decline but have pushed up short-term borrowing costs, adding to pressure on the already cooling economy.
    The Reserve Bank of India announced on Thursday (August 08) new measures to drain cash from the financial system in a bid to address volatility in currency markets, following up on a slew of steps announced last month.
    The central bank will auction 220 billion rupees of government cash management bills every Monday, it said in a statement, without specifying for how many weeks the sales would last.
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