Investors bail out as India rupee crisis deepens
By Penelope Macrae, AFPNEW DELHI -- Indian policymakers are looking increasingly panicky as they battle the worst currency crisis in more than two decades, and more worryingly there is no sign their remedies are working.
August 19, 2013, 11:43 am TWN
The rupee lurched to a new lifetime low of 62.03 to the dollar on Friday while the benchmark share index posted its biggest one-day fall since September 2011.
“None of the policymakers' Band-Aid measures (from capital controls to tightening liquidity) seems to be working. They have not been able to turn the tide,” Rajeev Malik, economist at investment house CLSA, told AFP.
“The government and the Reserve Bank of India are taking fire-fighting measures.”
The rupee has lost 57 percent of its value against the US currency since it peaked at 39.40 rupees to the dollar in February 2008.
The currency's strength began unravelling when Lehman Brothers collapsed later that year, triggering the global financial crisis.
But pressure on the rupee has mounted in the past two years as investor alarm over a slowing economy and a ballooning current account deficit — the widest measure of trade — has grown.
Part of the reason for the currency's most recent slide — it has fallen 13 percent this year against the greenback — lies outside Indian policymakers' remit.
The currencies of emerging markets globally have fallen on expectations that an increasingly buoyant United States will soon roll back stimulus responsible for funnelling big investments overseas in quest of high yields.
But other reasons for the rupee's drop are home-made — failure to move fast enough on economic reform, a series of government corruption scandals, perceptions of policy paralysis and the record current account deficit, analysts say.
Since June 1, overseas funds have pulled out US$11.58 billion from India's stock and debt markets.
Investors worry that despite the long-term growth potential of the country of 1.2 billion people, “things are not in shape in the interim period”, said investment house IDBI research head Sonam Udasi.