Indian rupee hits record low

on June 28.

“This is a freefall,” Abhishek Goenka, chief executive of consultancy firm India Forex Advisors, told AFP.
The rupee’s fall is the latest blow to the stuttering growth story of India, Asia’s third-largest economy, which has been beset by sharply slower growth, worsening public finances and political turmoil.

A scramble by oil and other importers to buy dollars to pay for imports in the US currency also weakened the rupee yesterday. The rupee depreciated 7 percent against the dollar in May alone. Analysts say that while other currencies have been hit by the dollar’s increasing strength, the rupee has fared worse due to the country’s troubled public finances and string of corruption scandals.

The widening of India’s current account deficit – the broadest trade measure – to almost 5 percent of gross domestic product in the last financial year has also weighed on the rupee.

Foreign exchange traders reported no signs of India’s central Reserve Bank of India intervening in the currency market to support the beleaguered Indian unit.
Analysts say India’s central bank cannot intervene heavily to buttress the currency as it must retain enough foreign reserves for imports. Right now, it only has sufficient reserves for seven months of imports – the lowest cover in 13 years.

The RBI has a policy of not commenting on movements in the foreign exchange market and of intervening only to curb volatility.
New Delhi attempted to ease corporate concerns, saying it will take measures to curb the widening current account deficit as imports outpace exports.

India’s chief economic advisor at the finance ministry, Raghuram Rajan, said in televised remarks that “medium-term” steps will be taken to ease rupee volatility.

The weaker currency makes imports costlier, especially of foreign oil on which India heavily relies, and will stoke already high consumer inflation. – AFP.