Thursday 17 May 2012

News Hour- Rupee falls to new record low of 54.52 on global sell-off

MUMBAI: The rupee fell to new record low of 54.52 to the dollar as global risk aversion intensified, sending global markets, as well as local stocks, sharply lower. The Reserve Bank of India (RBI) has been largely absent given the global risk aversion, though dealers say the central bank could resume dollar sales. 

Earlier in the day, the currency recovered to 54.24/25 against the greenback compared to the 54.46 record low hit earlier in session, as stocks pared some losses and the euro posted a modest recovery. 

Some state-run banks have been seen on the sellside, but there is no definite talk of RBI intervention, dealers said. Today's lowest is being considered as the immediate resistance level for now. 

Seeking to allay investor fears, Finance Minister Pranab Mukherjee told Parliament today that India's growth story is intact. 

"We will take some austerity steps to convey that it is responding to situation, but I am not pressing the panic button," Mukherjee added. 

He emphasised the need to take serious steps to cap the subsidy bill at 2% of the GDP. The government cannot pass the entire burden of high oil prices to the consumers, he added. 

Repeated currency intervention by the central bank and a rash of other measures targeting deposits and exporters have failed to stem the slide in the currency, the worst performing emerging Asian currency by far since March. 

The downturn in global markets raises the prospect of capital outflows when India needs inflows to shore up its balance of payments, which slipped into the red in the December quarter for the first time in three years. 

Stalled policymaking in government ahead of general elections due by 2014 are also playing a key role in undermining confidence in the currency. 

Frequent currency intervention by the central bank would further sap rupee liquidity from the economy at a time when the country is facing a severe cash crunch in its banking system, analysts said. 

(Source- http://economictimes.indiatimes.com)

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