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India's rupee crashed nearly four percent to a new record low Wednesday as worries about a US-led military strike against Syria and surging crude oil prices fanned fears of a financial crisis.
The rupee, which lost three percent against the dollar Tuesday, plunged another 3.86 percent to close at 68.80 rupees to the US unit, its biggest one-day fall in nearly two decades.
The finance ministry called the sharp fall "irrational."
"This is an irrational sentiment. It (the rupee) will correct itself. It is important to stay on the course. There is no need to panic," Economic Affairs Secretary Arvind Mayaram told reporters in New Delhi.
The rupee, Asia's worst-performing currency this year, has lost around a fifth of its value against the dollar since the start of 2013.
Analysts fear the sharp rise in global crude oil prices will worsen energy-import dependent India's already record current account deficit — the broadest measure of trade.
Investors have voiced worries that India could be headed for its worst balance of payments crisis since it pawned its gold in 1991 to cover its import bill.
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But Mayaram said the current account deficit in financial year 2013-14 "will be much lower than expected. We have already seen some moderation."
The deficit hit a record $88 billion last year but the government has said it will cut it to $70 billion this year.
But with expectations mounting of military action against Syria, "the flight to dollar safety is expected to intensify pressure on the rupee in the short-term," HDFC analyst Ashutosh Raina warned.
Both Deutsche Bank and Standard Chartered Bank forecast the currency may test the psychologically key 70-rupee level before any respite.
"There was intervention from the central bank to support the rupee but it wasn't effective. The market is still gripped by panic ... the 70 level is on the cards," Param Sarma, chief executive of NSP Forex, told AFP.
On a brighter note, the benchmark Bombay Stock Exchange index rallied from a three percent fall to close flat on bargain-hunting.
On Tuesday Finance Minister P Chidambaram had said the rupee is undervalued and came out with a 10-point action plan to revive the economy, which included promoting exports, encouraging manufacturing and reducing the deficit.
But the main opposition Bharatiya Janata Party said Wednesday the government had "completely run out of ideas to deal with the crisis" and should quit.
"The only thing that will stabilise rupee at this point of time is for the government to resign and go for fresh elections," BJP leader and former finance minister Yashwant Sinha said. Polls are due by May 2014.
Wednesday's rupee losses coincided with a strengthening of the dollar as dealers sought refuge in the US currency — seen as a safe haven amid potential turmoil in the oil-rich Middle East.
But other reasons for the rupee's drop are home-made — failure to move fast enough on economic reform, a string of government graft scandals, perceptions of policy paralysis and the current account deficit, analysts say.
Also the rupee, like other emerging market currencies, has been hit by foreign fund outflows, with the Federal Reserve expected to wind down its stimulus scheme as the US economy recovers.
"Emerging markets have been reeling under currency pressure with the dollar strengthening. That is going to definitely continue," said Arindam Ghosh, chief executive of BlackRidge Capital Advisors.
With the rupee tanking, domestic gold prices hit a record 34,500 rupees per 10 grams as Indians turned to what they see as a traditional secure investment.
Analysts were looking ahead to first-quarter growth data Friday that is expected to show the economy still weak. The economy grew five percent last year, a decade low.
The government has forecast growth of around 5.5 percent this year. But investment house BNP Paribas cut its growth projection to 3.7 percent for 2013-14 from a previous 5.2 percent estimate, describing recent economic data as close to "disastrous."