India rupee plunges to fresh record low against dollar

MUMBAI (AFP) - India's rupee plunged to a fresh record low against the US dollar on Tuesday over concerns that foreign capital could flow back to the United States as the American economy picks up.

The rupee, Asia's worst-performing major currency this year, hit a lifetime low of 61.51 rupees to the US dollar in morning trade, below its previous low of 61.21 rupees on July 8. Against the Singapore dollar, it was valued at 48.53 Indian rupees on Tuesday afternoon.

The rupee has plunged 12.3 per cent in 2013, including Tuesday's fall.

Indian shares fell 1.03 per cent to 18,983.76 points after the currency hit a new low.

"The rupee is on a runaway train and no one knows where it will stop," said Mr Naveen Mathur, associate director (commodities and currencies) with Angel Broking.

"This is not looking good for the country," Mr Mathur said.

Dealers said India's central bank - which is believed to have intervened several times in the past few months to help prop up the rupee - was absent from the market on Tuesday, as the rupee plunged.

Demand for the dollar has increased amid speculation of a sooner-than-expected scaling back of US stimulus as the world's largest economy recovers, analysts said.

Slackening domestic growth, weak exports, rising foreign fund outflows and India's high current account deficit have battered the rupee.

The depreciating rupee stokes inflation by raising the cost of everything India imports from crude oil to chemicals and pulses.

Growth is at a decade low of five per cent and the current account deficit - the broadest measure of trade - for the full fiscal year ended March is at a record high, mainly from huge oil and gold imports and weak exports.

The rupee depreciation is the latest blow for the scandal-tainted coalition of Premier Manmohan Singh, which is keen to see the economy pick up before elections due in 2014.

On Monday, data showed that India's services sector, which contributes 60 per cent of national output, shrank for the first time in nearly two years in July, fuelling pessimism about an early economic recovery.

Market sentiment is also weak in the absence of fresh positive news from India's government.

India's rupee woes have heightened speculation the nation could be headed for a crisis of the sort it suffered in 1991, which forced a bailout by the International Monetary Fund.

In an interview published last week, veteran economist Arvind Panagariya warned India's foreign exchange reserves were too low.

The Reserve Bank of India has kept interest rates on hold, prioritising rupee stability over economic growth, and has given no timeline for rolling back its recent liquidity-tightening measures to prop up the currency.

Last month the RBI announced a range of measures to bolster the rupee, including raising short-term interest rates and lowering the amount a bank can borrow or lend under its daily liquidity limit.

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