The Indian rupee declined to near its lifetime low this morning despite heavy intervention by the country’s central bank in the forex markets following the apparent failure of its moves to stem the slump.
Asia’s worst performing currency this year slumped to Rs15.58 vs. the UAE dirham (Rs57.21 vs. $1) at about 10.20am UAE time (6.20am GMT), with analysts maintaining that further drumming of the rupee in the near future could not be ruled out.
It is now within breathing distance of its all-time low of Rs15.60 vs. Dh1 (Rs57.32 vs. $1) made last Friday.
According to traders, Reserve Bank of India (RBI), the country’s central bank, intervene heavily in markets yesterday to prop up the rupee after the milder-than-expected measures announced by the RBI and the finance ministry failed to cheer up the markets.
In fact, according to reports, RBI Governor D. Subbarao has said that no amount of paperwork can stem the rupee’s slide, which he believes will only get arrested once foreign funds actually start arriving in the country.
In a presentation made last week to Indian Merchant’s Chamber, Subbarao cited India’s high current account deficit for the rupee’s decline. He also noted that capital flows into India has witnessed a marked decline since April 2012. Foreign institutional investor inflows, foreign direct investment and external commercial borrowings had all declined, he said.
Indian Finance Minister Pranab Mukherjee yesterday handed over is resignation to Prime Minister Manmohan Singh, who will now oversee the finance portfolio until such time that a new finance minister is appointed.
Mukherjee, the ruling UPA coalition’s candidate for the July 19 Presidential poll, in fact acknowledged his flawed decision-making while at the helm of the country’s finances. “I know that not every decision which I have taken might have been right,” he said while putting in his papers.
“The Indian rupee had seen its worst trend in the month of May by depreciating almost 6-7 per cent against the US dollar. In the last week, rupee saw a fall of 3.6 per cent mainly driven by the status quo approach by the RBI on the policy rates,” India Forex Advisors, a Mumbai-based foreign exchange consultancy said in a report.
“Recent announcements made by the central bank on FIIs and NRIs could not provide any long-lasting relief to Indian investors, who were eagerly waiting for some aggressive measures,” the report said. “The finance ministry explained later that they had never promised to bring aggressive measures; they had only said they will be taking few steps to control the worsening situation in Indian economy,” it added.
Last week, Fitch had scaled down India’s sovereign credit outlook to ‘negative’ from ‘stable’ on account of high fiscal deficit and the absence of inadequate reforms.