Indian rupee slips again on Delhi’s dilly-dally

After holding its own for three consecutive sessions, and clawing back some of its losses during the previous seven sessions, the Indian rupee slipped once again versus the US dollar and other major currencies this morning after the Delhi government announced a partial rollback of last week’s petrol price hike.

At 10.30 am UAE time (6.30am GMT), the rupee was trading at Rs15.14 against the UAE dirham (Rs55.60 against $1), after having recovered to Rs14.98 vs. Dh1 (Rs55.05 against $1) at 8am UAE time (4am GMT) yesterday.

The Central government too seems to have buckled under popular pressure, and a decision to hike diesel and LPG prices has been put off amid street protests and dissidence.

Indian Finance Minister Pranab Mukherjee reportedly held consultations with Union Oil Minister S. Jaipal Reddy and Chief Economic Adviser Kaushik Basu on the issue, but it is now being reported that a meeting of ministerial panel he heads on the issue of the price-hike of sensitive products, including diesel, has been deferred indefinitely.

In a televised interview, Paul Mackel, Managing Director-head of Asian currency research at HSBC bank, said a further downside cannot be ruled out in the beleaguered Indian currency, which has lost more than a quarter of its value in the past 10 months.

“I think you cannot rule out further weaknesses for the rupee,” Mackel told CNBC-TV18, a business news channel. “It’s held up okay through the end of last week and even at the beginning of this week. But I still think that there are some deep routed issues externally, which can work against the rupee,” he added.

He pointed out the fact that the end of this week will see India releasing fresh GDP numbers, which he believes may depress the currency further. “Some of the domestic conditions will keep the currency on the back foot going into the GDP number later this week,” he said.

Although last week the Indian government showed signs of recovering from a policy paralysis that it has been suffering from for over two years now, the latest rollback of petrol price-hike and the deferment of a meeting to mull a hike in diesel and LPG prices means that it is slipping back to its old ways.

While today’s downward movement is also being attributed to the month-end expiry of the May derivatives contracts, Mackel insisted that the uncertain global environment may pull the rupee – along with other Asian currencies – further south.

“I can’t rule out that it could go even lower. I just can’t in this environment. There are so many uncertainties out there. Externally, you could have a very nasty situation within the Euro zone unfolding in the next couple of weeks. It wouldn’t just be that the rupee would be weakening, it would be a lot of Asian currencies altogether. The market would be gravitating increasingly towards the dollar because they want liquidity. So, I don’t like to rule out further weaknesses at all.”

The characteristic dragging of feet by the Indian government has once again dampened the interest of global investors, who were awaiting a clear signal on the reforms process ahead. India’s swelling fiscal and trade deficits, at 5.8 and 9.9 per cent, respectively, are the bane of its economy, which has slowed down substantially this year.

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