Rupee hit by worst sell-off
India’s battered rupee endured its worst day on foreign exchange markets in almost two decades, plunging nearly 4 per cent to close just below Rs69 to the dollar – despite interventions from the nation’s central bank.
On Tuesday, Palaniappan Chidambaram, India’s finance minister, had outlined a 10-point scheme to reduce the nation’s current account deficit and restore economic growth.
However, the rupee quickly fell to a record low yesterday morning, before dropping further late in the day, to close at Rs68.85 to the dollar – a decline of 3.8 per cent. It was the biggest one-day percentage fall, underlining the rupee’s position as one of the world’s worst performing currencies this year.
The sharp declines come amid concern over rising oil prices, ahead of possible western military action in Syria – which would hit India’s oil-import-dependent economy especially severely, potentially worsening its current account deficit.
Yesterday’s early falls forced the Reserve Bank of India to step in to support the currency by selling dollars, and analysts speculated that Life Insurance Corporation of India, a state-backed investor, had also intervened to bolster the stock market.
Stocks fell heavily early in the day, with the benchmark Bombay Stock Exchange Sensex index down as much as 2.5 per cent in the morning, before recovering to close flat on the day.
The government confirmed yesterday that it would establish a panel to examine the possible use of currency swaps with trading partners to bolster foreign exchange reserves. Anand Sharma, commerce minister, also blamed global factors affecting many emerging economies for the rupee’s continued fall.