ndia Infoline News Service / Mumbai Oct 27, 2008 14:21
The rupee has slid 21% this year even as the central bank sold dollars from its foreign-exchange reserves to stem losses.
The Indian rupee sank to a new all-time low on Monday, as local equity markets continued to plunge, heightening fears of a protracted global recession that will prompt more selling by foreign portfolio investors.
The rupee dropped as much as 0.6% to 50.28 against the US dollar, an all-time low, before trading at 50.25 as of 4:06 p.m. The partially-convertible local currency opened at 50.02 compared to the previous close of 49.98.
The rupee fell for a ninth day, the longest losing streak in 11 months. It has slid 21% this year despite the Reserve Bank of India (RBI) trying it best to stem the slide by selling dollars from its foreign exchange reserves.
India's foreign exchange reserves have dwindled by more than US$42bn to US$273.9bn as on Oct. 17, from a record US$316.2bn in May.
Overseas investors sales have exceeded purchases this year by a record US$12.2bn due to volatility in the BSE Sensex which slid as much as 11.50% to below 8,000 for the first time since November 2005. The Sensex fell to an almost three-year low today.
The rupee, which has fallen for 11 consecutive weeks, is the worst performer in Asia after South Korea's won. Nine of the 10 most-traded Asian currencies declined last this week, amid fears that global investors will continue to dump emerging market assets as risk aversion increases.
The RBI has been intervening heavily in the forex market over the past several weeks, with public sector banks selling dollars on its behalf, in order to check the depreciation in the rupee. The currency has also been hit by heavy dollar buying by importers, especially oil refining companies.
The rupee also continues to be under pressure as a result of dollar demand from foreign banks, who have been buying the greenback in the local spot market and simultaneously selling them on the overseas non-deliverable forwards (NDF) market, in an attempt to arbitrage the price differential.
