India’s battered rupee endured its worst day on foreign exchange markets in almost two decades, plunging almost 4 per cent to close just below Rs69 to the dollar – despite interventions from the nation’s central bank.
On Tuesday, Palaniappan Chidambaram, India’s finance minister, had outlined a 10-point scheme to reduce the nation’s account deficit and restore economic growth.
However, the rupee quickly fell to a record low yesterday morning, before dropping further late in the day, to close at Rs68.85 to the dollar – a decline of 3.8 per cent. It was the biggest one-day percentage fall since October 1995.
Shubhada Rao, chief economist at Yes Bank in Mumbai, said: "It is breathtaking. You just have to be in awe at the speed at which the rupee has depreciated. I have tracked the markets for around 23 years, and I've never seen anything like it."
The sharp declines come amid concern over rising oil prices, ahead of possible Western military action in Syria – which would hit India's oil-importdependent economy especially severely.
Yesterday's early falls forced the Reserve Bank of India to step in to support the currency by selling dollars, and analysts speculated that Life Insurance Corporation (LIC) of India, a state-backed investor, had also intervened to bolster the stock market.
Stocks fell heavily early in the day, with the benchmark Bombay Stock Exchange Sensex index down as much as 2.5 per cent in the morning, before recovering to close flat.
'Government ineptitude'
The government confirmed yesterday it would establish a panel to examine the possible use of currency swaps with trading partners to bolster foreign exchange reserves.
However, observers remained unconvinced that India’s government had taken sufficiently bold action.
"Clearly the ineptitude, brazen populism and lack of appropriate policies from the government is the largest part of the problem," said New Delhi-based financial adviser Surjit Bhalla.
-Copyright The Financial Times Limited 2013
