Rupee Falls To New Record Low Against The Dollar (Aug 2013)

rupee

Source: BBC – Rupee falls to new record low against the dollar

Notable excerpts:

The Indian rupee has continued to fall, hitting a fresh all-time low against the US dollar, despite recent measures by the government to stem its decline.

It fell to as low as 62.49 against the US dollar in early trade on Monday.

The decline in the currency comes as foreign investors have been pulling money out of the country amid worries of a slowdown in economic growth.

India has put restrictions on money that can be sent out of the country in an attempt to prop-up the currency.

International investors have withdrawn $11.58bn (£7.4bn) in shares and debt from India’s markets since the beginning of June, according to official data,

India’s central bank has also increased the interest rate at which it lends money to other banks and also put a cap on their daily borrowings in an attempt to support the currency.

Policymakers have also introduced other measures, such as higher import duties on gold and a ban on imports of gold coins and bars.

The Indian rupee has declined by nearly 16% against the US dollar since May. The drop has coincided with a slowdown in the country’s growth rate.

Asia’s third-largest economy grew at an annual rate of 5% in the 2012-13 financial year, the slowest pace in 10 years.

At the same time, India’s current account deficit has been growing, triggering further fears over its economic and financial health.

A rising current account deficit affects a country’s foreign exchange reserves as well as the value of its currency.

The combination of all these factors has sparked comparisons to the financial crisis that India faced in 1991. In July that year, the rupee eventually fell by more than 32% against the US dollar after foreign exchange reserves were depleted.

The issue resulted in the country being rescued by the International Monetary Fund.

Over the weekend, Prime Minister Manmohan Singh tried to allay fears that India was facing a similar situation.

He said that back in 1991, the country had foreign exchange reserves only for 15 days, while currently it has reserves of six to seven months.

“So there is no comparison. And no question of going back to [the] 1991 crisis,” Mr Singh told the Press Trust of India.

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