Indian rupee plunges to 60-level as US dollar demand spikes

Govt to take action to stem rupee fall as necessary: Raghuram Rajan

The rupee resumed lower at 59.50 per dollar against the last closing level of 58.70 per dollar at Interbank Foreign Exchange (Forex) Market and dropped further to an all-time low of 60.00 per dollar before quoting at 59.53 per dollar at 1040 hrs.

In New York,the US dollar surged yesterday after Federal Reserve Chairman Ben Bernanke said the central bank could slow the pace of its bond-buying programme later this year if its economic forecasts are accurate.

Ben Bernanke’s call

The Indian benchmark Sensex fell below the 19,000 level due to all-round selling pressure as the rupee hit record low against the dollar coupled with lower global cues. The Sensex dropped by 401.81 points,or 2.09 per cent,to 18,843.89 in the late morning trade.

RBI likely sold dollars after rupee hits record low: dealers

Indian rupee at record low as India seen lacking options to break fall

(Reuters) A top Indian official said the government has options to stem a fall in the rupee but did not offer any specifics,turning the focus on the central bank to stem a rout that sent the rupee to record lows and bond yields surging on Thursday.

The rupee,the worst Asian performer on Thursday in a global market sell-off,was instead supported by the Reserve Bank of India,which stepped in to sell dollars after it slumped to a record low of 59.9350 against the dollar,traders said.

Yet,traders said the RBI’s firepower was likely to be limited given it has foreign exchange reserves of $290 billion,only enough to cover imports for seven months.

The mixed government messages and a cautious RBI are exacerbating the perceived vulnerability of a country suffering from a record-high current account deficit in the midst of a global downturn sparked by potential tapering in U.S. monetary stimulus and a weakening Chinese economy.

“Both the willingness and ability appear to be limited for the government,” said Samiran Chakrabarty,head of research at Standard Chartered Bank in Mumbai.

“The RBI is also favouring relative free movement of the currency,” he added.

The rupee has been among the top decliners in emerging currencies since May due to a current account deficit that hit a record 6.7 percent of gross domestic product in the October-December quarter. It was last trading at 59.82/81 from its 58.71/72 close on Wednesday,

The falling rupee and a narrowing differential with U.S. Treasury yields have hit bonds hard,spurring foreign investors to sell a net $4.7 billion over the 19 sessions through Tuesday.

Government bonds slumped again on Thursday. The benchmark 7.16 pct 2023 bond yield rose 10 basis points to 7.36 percent from its previous close,which led to the fixed income association scrapping trading bands.

Government officials have blamed global volatility for the rupee’s tumble and vowed action without offering specifics.

“We should not let ourselves be led by the markets into directions we don’t want to go,” India’s chief economic adviser,Raghuram Rajan,told reporters on Thursday,though he also said the government was ready to act.

“Let me emphasise,we are not short of actions and instruments if and when the need arises.”

The comments were stronger than those of a senior ministry official who spoke with reporters earlier in the day without wanting to be identified. “You can’t do much when there is a global sell-off,” said the official. “You have only limited options to deal with this kind of situation.”

The RBI kept interest rates on hold this week after cutting them in each of its previous three policy reviews,warning of upward risks to inflation due in part to a weaker rupee.

Indian Finance Minister Palaniappan Chidambaram last week promised government measures including raising foreign direct investment limits and revising locally produced gas prices and power tariffs,though investors remain sceptical about implementation.

“Market does not react to statements now. It looks for actions,” said Paresh Nayar,head of fixed income and foreign exchange trading at First Rand Bank.

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Market were also hit by data showing China’s factory activity weakened to a nine-month low in June.

The rupee fell to a record low of 59.9350 to the dollar,breaching past its all-time low of 58.98 on June 11. The rupee was trading at 59.82/81,down from its 58.71/72 close on Wednesday.

Bond yields jumped,with the benchmark 7.16 pct 2023 bond yield rising 10 basis points to 7.36 percent from its previous close.

India’s BSE and NSE share indexes fell more than 2 per cent each.

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