India’s rupee hits new low against dollar, stocks down

MUMBAI: India’s rupee hit a new record low against the dollar Thursday, on concerns the US Federal Reserve would scale back its stimulus program that has pumped billions of dollars into global markets.
The rupee hit 59.98 in late afternoon trade, well below its previous record of 58.98 reached last week, prompting the Indian government to move to allay investor concerns over the currency.
“The markets may be over-reacting as they tend to do in such times,” the finance ministry’s chief economic adviser Raghuram Rajan said.
“We are not short of action or instruments as and when the need arises,” Rajan told reporters in New Delhi earlier in the day.
The central bank is believed to have intervened twice during the day, dealers said, each time the rupee came close to the 60 level.
The rupee — the worst performing Asian currency in 2013 — ended at a new record closing low of 59.58 against the dollar.
The rupee has been hard hit recently, in part on concerns about Asia’s third largest economy, which has been growing at a decade low of 5.0 percent, as well as worsening public finances and political turmoil.
India’s benchmark Sensex index closed down over 2.74 percent to 18,719.29 points, on fears of overseas fund outflows from India.
Trading in Indian government bonds also halted briefly Thursday, after yields breached set limits, but resumed later.
Federal Reserve chairman Ben Bernanke said on Wednesday that the bank could begin to wind down its key stimulus program later this year, signalling a growing confidence in the US economy.
The rupee has fallen 8.7 percent in the calendar year, followed by the Korean Won and the Philippine Peso, dealers said.
“The verdict is clear, we are likely to enter a new territory (for the rupee),” said Abhishek Goenka, chairman of advisory firm India Forex.
Goenka feared the rupee would weaken further, to 61 levels in the near-term, expecting the dollar to maintain its “bull-run.”
Analysts say the Reserve Bank of India (RBI) cannot intervene heavily to buttress the currency as it must retain enough foreign reserves for imports. 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.
The weaker currency makes imports costlier, especially of foreign oil on which India heavily relies, and will stoke already high consumer inflation.