RTTN: Indian Rupee Tumbles To 2-week Low Against Dollar
(RTTNews) - Wednesday, the Indian rupee plunged to its lowest level in almost 2-weeks against the dollar on expectations of more capital outflows due to sustained sluggishness in stock markets amid prolonged global economic slowdown.
Indian stocks opened lower today after signs of further deterioration in the world economy. National Stock Exchange's benchmark Nifty fell 13.80 points or 0.47 per cent at 2954. Bombay Stock Exchange's 30-share Sensex slipped 60.08 points to 9626.07 from Tuesday's close.
US stocks fell in thin trading yesterday on further deterioration in the housing market and sustained worries of weak consumer spending weighed on retailers in the final stretch of the key Christmas shopping season.
At about 11:00 pm ET, the rupee dropped to a 2-week low of 49.19 per dollar and this may be compared to yesterday's New York session close of 48.69. If the Indian currency weakens further, it may likely target the 49.5 level.
The rupee tumbled to a fresh record low of 50.62 per dollar on December 2, at which point it was down 22 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 8% thereafter, it lost ground again after hitting a 2-1/2 -month high of 46.4050 against the dollar on December 19. Since then, the Indian currency has depreciated 6%.
While a weakening rupee might bring cheer to export-oriented sectors such as IT and textiles, it has pushed up the foreign exchange liabilities of Indian companies. When the rupee depreciates, the value of foreign currency liability denominated in rupee terms increases and vice versa. The falling rupee will severely affect the small companies, whereas the big ones will be impacted only moderately.
A weaker currency also increases costs for companies such as Indian Oil Corporation Ltd., the nation's largest refiner. These companies face losses because under Indian rules they have to sell fuel products at prices below their costs. India meets almost 75 percent of its crude oil needs from imports.
