RTTN:Indian Rupee Plummets To Record Low Against Dollar
(RTTNews) - The Indian rupee plunged to a record low against the U.S. dollar on Tuesday as traders continued to express concerns about the financial situation in the U.S. and Europe.
The U.S. lawmakers' failure to reach an agreement on budget cuts, rising bond yields in Europe and Moody's warning on France's tripe A rating added to risk aversion in Asian markets today.
Indian finance ministry's signal that the central bank may not sell dollars "aggressively" to stem the local currency's depreciation also led to the fall in rupee.
"RBI's ability to intervene in forex market is limited", Department of Economic Affairs Secretary R Gopalan said on Monday. This is in line with comments made by RBI Deputy Governor Subir Gokarn, who said last week that the central bank would be careful about using foreign exchange reserves aggressively to protect the rupee's depreciation.
The rupee declined to a record low of 52.720 per dollar today, breaching its previous record of 52.565 hit in March 2009.
The Indian currency has lost 14.8 percent against the dollar thus far this year, as concerns about India's high inflation and slowing growth prompted traders to sell the rupee.
In an effort to tame persistently high inflation, the Reserve Bank of India has hiked interest rates 13 times since March 2010. The headline inflation rate has remained above 9 percent since December last year. Latest data showed that WPI inflation was 9.73 percent in October, compared with 9.72 percent in the previous month.
But the central bank's rate hike failed to strengthen the rupee as it was being hammered by weak fundamentals like a widening current account deficit and subdued portfolio flows.
India's trade deficit widened the most in October in at least 17-years as merchandise shipments grew at the slowest pace in two years on waning demand for engineering and petroleum products in Europe.
Merchandise exports rose 10.8 percent to $19.9 billion in October from a year earlier, government data showed on November 09. Imports increased 21.7 percent to $39.5 billion, causing a trade deficit of $19.6 billion.
India's current account, the broadest measure of trade and investment flows, showed a deficit of $14.1 billion in the three months through June, compared with a shortfall of $5.4 billion the previous quarter, according to central bank data.
The rupee's relentless slide against the dollar is likely to fuel inflationary pressures in Asia's third-largest economy.
A lower rupee will also increase gasoline subsidy costs in a nation that imports 80 percent of its fuel.
(RTTNews) - In its Macroeconomic and Monetary Development report in October, the RBI had also acknowledged that the depreciation of the rupee raises the risk of imported inflation.
"The rupee has depreciated by about 11 percent against the dollar during 2011-12 so far. India's imports account for about 22 percent of GDP and depreciation of the rupee raises the risk of imported inflation," the RBI had said in the October report.
The Indian currency's depreciation has already started pushing up prices in some sectors like automobile, consumer goods, and mobile phones.
State-owned oil marketing companies, which sell diesel and cooking fuels at government-controlled prices, are also piling up revenue losses as a falling rupee is pushing up the cost of oil imports.
Every rupee's fall against the dollar increases the combined gross revenue loss for Indian Oil Corp Ltd, Bharat Petroleum Corp Ltd and Hindustan Petroleum Corp Ltd by a staggering 8,000 crore.
(RTTNews) - In its Macroeconomic and Monetary Development report in October, the RBI had also acknowledged that the depreciation of the rupee raises the risk of imported inflation.
"The rupee has depreciated by about 11 percent against the dollar during 2011-12 so far. India's imports account for about 22 percent of GDP and depreciation of the rupee raises the risk of imported inflation," the RBI had said in the October report.
The Indian currency's depreciation has already started pushing up prices in some sectors like automobile, consumer goods, and mobile phones.
State-owned oil marketing companies, which sell diesel and cooking fuels at government-controlled prices, are also piling up revenue losses as a falling rupee is pushing up the cost of oil imports.
Every rupee's fall against the dollar increases the combined gross revenue loss for Indian Oil Corp Ltd, Bharat Petroleum Corp Ltd and Hindustan Petroleum Corp Ltd by a staggering 8,000 crore.
