India's rupee hits a record low of 60 to the dollar

MUMBAI (AFP) - India's rupee touched a record low of more than 60 to the dollar on Wednesday as overseas funds continue to pull out money from emerging markets.

Despite government efforts to slow the slide and interventions from the central bank in recent weeks, the rupee slid past its previous low of 59.98 against the dollar, struck last week, to hit 60.51.

“What we saw on the screens was really bad. No level was holding,” said Mr Naveen Mathur, an associate director with Mumbai’s Angel Broking.

Dealers said the Reserve Bank of India (RBI) may have intervened several times in recent days, particularly on Wednesday as the rupee inched closer to the 60 mark.

Asian currencies, including the Indian rupee, have been falling against the strengthening dollar as the US Federal Reserve looks set to scale back its stimulus plans as the US economy recovers.

The stimulus, which has seen the US central bank buy billions of dollars of assets to increase the money supply, had fuelled investment flows into emerging markets.

The rupee has also been hard hit by concerns about India’s economy – Asia’s third largest – which is growing at a decade-low rate of 5.0 per cent amid worsening public finances.

The Indian currency, which has fallen 9.5 per cent in 2013, is the worst performing currency amongst major Asian countries.

Its tumble raises import prices of everything from oil and fertilisers to food staples such as pulses, stoking already high consumer inflation and causing hardship for India’s poor millions.

Weak local share markets have put additional pressure on the rupee as overseas funds sell Indian stocks.

Foreign investors have become net sellers of Indian equities, selling US$1.39 billion (S$1.78 billion) on balance in June after buying stock worth US $4 billion in May, regulatory data shows.

India’s government in previous weeks has said that that it “was not short of action” to protect the rupee, but it has been unable to prevent the slide.

“This is a worrying sign. If not controlled, it (the rupee’s fall) will have a deeper impact on the economy,” said analyst Mathur.

Analysts say the RBI cannot intervene heavily to buttress the currency as it must retain enough foreign reserves for imports. It currently 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.

Indian shares closed down 0.41 per cent or 77.03 points at 18,552.12 after the 60 mark was breached.

The weakening of the rupee will also affect India’s current account deficit – the broadest trade measure – which ballooned to just under five per cent of gross domestic product in the last financial year.