Indian rupee slumps to Rs16.82

Intervention by the Reserve Bank of India (RBI), the country’s central bank, was nowhere to be seen as the Indian rupee fell to a record low of Rs16.82 against the UAE dirham, and Rs61.788 against the US dollar, this morning at 11.20am UAE time (7:20am GMT) as a sagging economy and slumping stock market took its toll on the beleaguered currency.

This latest salvo comes just in time for Eid celebrities in the UAE and across the world, and Indian expats in the Arab world and elsewhere are expected to remit record sums this summer as the rupee has been trending ever lower.

Should Indian expats remit their money now or will it make sense to hold on a little longer? The rupee's recent track-record suggests it might be wise to wait just a tad longer. This record weakening is only the latest in the string of record declines that the rupee has seen in the past couple of years, and the currency has lost about 40 per cent of its worth in the last 24 months, making it one of the worst performing currency on that period.

Moreover, the latest slump proves that any amount of symptomatic treatment of the economic malaise that India faces is not going to support the rupee for a prolonged period, and that unless the fundamental flaws of the economy are corrected and the fiscal deficit is reined in, the currency is bound to keep weakening.

As Emirates 24|7 reported last week, the rupee is in serious danger of slumping to Rs17.70 against the UAE dirham (Read: Abandon ship? Indian rupee could fall to 17.70 against UAE dirham) as global investment banks issue damning reports on the country’s stock and financial markets.

Among the measures that have been taken recently to stem the rupee’s decline, the RBI has restrained lending to the banking system in order to make it more expensive for them to buy dollars with borrowed rupees. However, that measure has gotten more or less countered by the increased spending by the India government, which has once again rerouted the money back in the banking system.

India needs foreign currency to pay for its massive imports, primarily oil and gold. Authorities have tried to dampen demand for both by imposing crushing measures like hiking the gold import duty to 8 per cent and hiking the price of petrol five times in two months.

Unfortunately for India, though, the measures seem to have failed and demand for both is seen rising which, coupled with a lackluster corporate performance, is sounding the death-knell for the rupee. Aggravating the situation further is the recent lack of confidence that foreign investors have shown in the Indian markets, dumping Indian assets and further accelerating the decline. 

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