The Indian Rupee went into freefall against the US Dollar, tumbling by its biggest margin in 21 months after the US Federal Reserve signalled that it will phase out a stimulus programme that has boosted India’s Dollar supply.
The Rupee sank by 1.9% to 59.85 per Dollar, its biggest drop since September 2011.
The Rupee slumped to a record low after Federal Reserve Chairman Ben Bernanke said that it could taper its $85 billion monthly bond buying programme as soon as late 2013 and halt it completely in 2014 as long as the US economy continues to improve.
The Rupee sank by 1.9% to 59.85 per Dollar
Raghuram Rajam, the chief economic advisor to the finance ministry said that the Indian government is preparing to act to curb the currency’s volatility and that it will make a statement on the issue soon.
“There was a knee-jerk reaction and it seems to be settling down now,” said N. Srinivasan Venkatesh, Mumbai-based head of treasury at IDBI Bank Ltd. “However, there will be pain due to the current-account deficit and as leveraged investors are pulling money from Indian debt.”
Early on Thursday morning the Rupee managed to pare some of its losses on speculation that the Reserve Bank of India intervened in the currency market to curb exchange-rate losses. These rumours have not been confirmed.
Analysts said the currency’s slide signalled India’s dependence on foreign capital inflows.
“It is a classic case of a country’s vulnerability to capital flight because of its current account deficit situation,” said Stuart Oakley, head of Asian currency trading at Nomura.
India’s current account deficit, which is the difference between inflow and outflow of foreign currency, hit a record high of 6.7% of its gross domestic product (GDP) in the October to December quarter.
The deficit occurs when a country’s total imports are greater than its exports. A rising deficit impacts the country’s foreign exchange reserves as well as the value of its currency.
Current Rupee (INR) Exchange Rates
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The Pound Sterling/ Indian Rupee Exchange Rate is currently in the region of: 92.4375 >
The Euro/Indian Rupee Exchange Rate is currently in the region of: 79.1455 >
The US Dollar/Indian Rupee Exchange Rate is currently in the region of: 59.8541 >
The Australian Dollar/Indian Rupee Exchange Rate is currently in the region of: 55.0077 <
The New Zealand Dollar/Indian Rupee Exchange Rate is currently in the region of: 46.6629
(Correct as of 09:40 am GMT)
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