Post date: Aug 28, 2013 9:51:29 AM
The rupee slumps to a record low below 68 per dollar and shares tumbled amidst growing worries that foreign investors will continue to sell out of a country, while economic experts predict the rupee to breach the 70 mark.
NEW DELHI, INDIA (AUGUST 28, 2013) (ANI) - The rupee slumped to a record low below 68 per dollar on Wednesday (August 28) and shares tumbled amidst growing worries that foreign investors will continue to sell out of a country, while economic experts predicted the rupee to breach the 70 mark.
The rupee fell below the psychological 68 per dollar mark, a record low, in the mid-morning session with a sharp fall in domestic shares adding to concerns of foreign fund withdrawals from the equity market as well.The partially convertible rupee was trading at 68.00/68.05 per dollar, after hitting a record low of 68.05 and down more than 2.6 percent from its close of 66.24/25 on Tuesday (August 27).
The Nifty fell more than 3 percent on foreign selling worries
Economic expert, Akash Jindal said that if the rupee crossed the seventy mark then the country would face the biggest recession after independence.
"If we don't do immediate fire fighting I think the dollar would cross 70 rupee mark and mark my words we will have faced the biggest recession after independence because …crude has already crossed 150 dollars per barrel and I think that there could be a situation in India where we may be compelled to sell petrol at 80 or 85 rupees per litre and diesel prices may also have to be escalated, said Jindal."
The need to attract foreign capital is critical for a country whose record high current account deficit is a key reason behind the rupee's slump. Yet policymakers have consistently struggled to come up with measures that can convince markets they can stabilise the currency and attract funds into the country.
That failure is becoming an increasing source of tension for India at a time when fears of a possible U.S.-led military strike against Syria are knocking down Asian markets, with prospect that the Federal Reserve will end its period of cheap money as early as next month further raising concerns.
In financial capital, Mumbai, market expert, Sunil Shah, said that the government did not have adequate resources to provide the food security, which it had promised to the people after the recent passage of the bill in the lower house of the parliament.
"Thirty percent is because of the development in middle east, seventy percent is the local mismanagement. The investors feel that this food security bill which has been passed, the most conservative figure is 1 lakh thirty thousand crore ($ 20 billion ). We do not have those resources or revenues to dole out such a social scheme," said Shah.
The Indian rupee hits a record low and posts its biggest percentage fall in 18 years after parliament's approval of a $20 billion plan to provide cheap grain to the poor renews doubts about government resolve to control spending ahead of elections due next year.
Foreign investors sold nearly $1 billion of Indian shares in the eight sessions through Tuesday - a worrisome prospect given stocks had been the country's one sturdy source of capital inflows, although net purchases so far this year still total $12 billion.
The partially convertible rupee hit a record low of 68.75, down 3.7 percent on the day, after posting its biggest daily percentage fall in 18 years on Tuesday.
In New Delhi, a financial expert, Rakesh Bansal, said that the efforts of the government have failed to yield the desired result as the value of the rupee continued to depreciate.
"The government tried its best to control the weakness in the rupee but it failed. This is so because these are financial markets which are controlled by only one aim, that is money and this money has no boundaries. I feel like this is basically a euphoria in the USD-INR. This will not continue beyond seventy, seventy-one levels," said Bansal.
Worries are growing that Prime Minister Manmohan Singh's coalition government will be tempted into a populist spending splurge ahead of the general elections due next year and so will struggle to meet the fiscal deficit target.
Indian markets have been caught in a downward spiral since May as the prospect for a tapering off in the Federal Reserve's period of cheap money has exposedIndia's vulnerability among emerging markets - marked by a record high current account deficit, a troubling fiscal deficit and the weakest economic growth in a decade.
Finance Minister P. Chidambaram said on Tuesday the government would need to do more to revive an economy growing at the slowest in a decade and narrow a current account deficit that hit a record high of 4.8 percent of gross domestic product in the year ended in March.