ND: Indian Rupee Slumps To 9-day Low Against Dollar
Wednesday, the Indian rupee plummeted to a 9-day low against the dollar following sustained weakness in equity markets and expectations of more capital outflows due to sustained sluggishness in stock markets amid prolonged global economic slowdown.
Indian stocks as well as most of the Asian indices closed in negative terrain today on the back of fall on Wall Street last night.
U.S. stocks extended their losses yesterday, as some disappointing corporate news and falling commodity prices dented investor sentiment. The Dow closed down 176.6 points or 2.0% at 8,694.0, the Nasdaq dropped 35.8 points or 2.2% to 1,580.9, and the S&P 500 shed 20.3 points or 2.2% to 899.0.
Oil held steady above $59 a barrel in the Asian session today, after falling 5% yesterday to close below $60 for the first time since March 2007, as weakening energy demand offset news of more supply reductions. At 2:38 am ET, oil was quoted at $59.11, down 22 cents.
The Indian currency dropped to a 9-day low of 49.3050 per dollar by about 5:25 am ET today. If the Indian currency weakens further, it may likely target the 49.5 level. The dollar-rupee pair closed yesterday's New York session at 48.5150.
The Indian currency slipped today despite a better-than-expected industrial production report for September. India's industrial production increased 4.8% in September from the previous year, following a revised 1.4% rise in August, a report from the Central Statistical Organization showed. Production climbed more than the expected growth of 4%.
Manufacturing output also grew 4.8% on a yearly basis in September. Electricity output gained 4.4%, much larger than August's 0.8%. During April to September, industrial output moved up 4.9% from the prior year.
The global financial turmoil is curbing industrial output across Asia as a slowdown in the U.S. and Europe crimps demand for the region's exports. Industrial production in China grew 11.4 percent in September, the slowest pace in six years. Production in South Korea declined for a third month.
The rupee tumbled to a fresh record low of 50.31 per dollar on October 27, at which point it was down 21.6 percent this year, hit by a widening trade deficit and capital outflows from Indian shares as global financial turmoil led investors to exit riskier emerging markets.
Although the rupee has gained 7% thereafter, it lost ground again after hitting a 1-month high of 46.7050 against the dollar on November 5. Since then, the Indian currency has depreciated 5%.
India's exports grew 15 percent from a year earlier in September, the slowest pace in 18 months, as a weakening global economy damped demand for the nation's products.
Prime Minister Manmohan Singh last week urged industry to avoid any ''knee-jerk reaction such as large-scale job cuts'' to counter the impact of the financial crisis.
The Reserve Bank of India has reduced its key lending rate by 150 basis points to 7.5 percent in the past few weeks as the global financial crisis withered credit and sparked concerns of a steeper than expected economic slowdown at home and abroad. The bank also slashed banks' cash reserve requirements to release liquidity into the banking system and to boost growth ahead of elections next year.
Some state-run banks in India also reduced lending rates after Finance Minister Palaniappan Chidambaram on November 4 said he had ''impressed upon banks to ensure the delivery of credit at an appropriate price.'' State Bank Of India, the country's largest, cut the rate it charges its best clients to 13 percent last week from 13.75 percent, the highest in a decade.
