INDIA’S rupee hit a new all-time low against the dollar on Tuesday (August 20) on continuing fears that recent measures to stabilise the currency and kickstart the flagging economy will not work.
Asia’s worst-performing currency this year slid to 64.11 rupees against the dollar, past its previous low of 63.22 the previous day.
After hitting its new low, it strengthened marginally to 63.75.
The rupee’s fall has spilt over to the stock and bond markets.
Indian shares – which have fallen seven per cent in the past three trading days – slid as much as 1.83 per cent in early trade Tuesday to a low of 17,970.98 points.
The yield on the 10-year benchmark bond hit 9.23 per cent, the highest for over five years, reflecting eroding investor appetite for Indian debt as worries about the economy and potential default mounted.
India’s weak trading sentiment was mirrored across key Asian stock markets, with investors jittery before Wednesday (August 21)’s US Federal Reserve meeting.
At the meeting the Fed may spell out more details about the rollback of its massive stimulus programme.
Most emerging market currencies have been hit by expectations the Fed will scale back its stimulus sooner than expected, causing funds to flow back to the United States as its economy recovers.
Dealers said they feared that the rupee could weaken further, and that central bank measures over the past three months would not halt the slide.
“This is a crisis, the sentiment is extremely frail,” said Param Sarma, chief executive with NSP Forex, a forex consultancy.
“Nobody is coming forward to sell dollars,” he said.
The Reserve Bank of India, which in previous weeks had intervened in the forex markets to prop up the rupee, has been absent from the markets in the past two days, dealers said.
There are also growing fears that India will find it tough to fund its gaping current account deficit, which hit a record high last year, analysts said.
India relies on foreign capital to fund the deficit. But since June 1, overseas funds have pulled out $11.58bn (£7.39bn) from its stock and debt markets.
India’s market woes come a day after the World Bank’s chief economist Kaushik Basu said the country’s problems were “overplayed” and that it was not in danger of a full-blown economic crisis.
