The Indian Rupee tumbled yet again in Tuesday’s session, hitting a fresh all time low against the US Dollar in the early hours.
The currency’s slump came after doubts arose over the Indian government’s latest plan to narrow the country’s massive current account deficit. Fears over further foreign outflows were also raised as speculation rises that the US Federal Reserve will choose to taper its monetary easing policy in September.
On Monday the Indian finance minister announced a slew of measures designed to relieve some of the pressure bearing down upon the Rupee which included a focus on curbing imports and raising money abroad. The government hopes to narrow the current account deficit to 3.7% of GDP in the fiscal year ending in March 2014, down from the previous year’s record high level of 4.8%.
The markets however proved to be highly sceptical that the measures would be able to halt the Rupee’s seemingly unstoppable decline. The speculation over the Federal Reserve’s actions is likely to undermine anything the Reserve Bank of India attempts.
“These measures need to be backed by structural reforms. Unless the fundamental woes are addressed, any sustained relief in the Rupee will temporary” said Anubhuti Sahay an economist at Standard Chartered Bank in Mumbai.
Even if India is able to narrow its current account deficit to its target level it is still above what the RBI calls a sustainable deficit of 2.5% of GDP.
“Ultimately there is still little evidence to show a structural improvement in the current account,” said Scotiabank’s senior currency strategist Sacha Tihanyi in a note to clients.
“We continue to note that the current account deficit, at a level of even 3.7 percent of GDP, remains too large for India and still poses risks for the rupee.”
As the Federal Reserve’s September policy meeting approaches we can expect to see the Rupee decline even further.
Current Rupee (INR) Exchange Rates:
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The Pound Sterling/ Indian Rupee Exchange Rate is currently in the region of: 94.6732 >
The Euro/Indian Rupee Exchange Rate is currently in the region of: 81.3814 >
The US Dollar/Indian Rupee Exchange Rate is currently in the region of: 61.2399 >
The Australian Dollar/Indian Rupee Exchange Rate is currently in the region of: 55.9017 >
The New Zealand Dollar/Indian Rupee Exchange Rate is currently in the region of: 48.9485 <
The Canadian Dollar/Indian Rupee Exchange Rate is currently in the region of: 59.3033 <
(Correct as of 12:10pm GMT)
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