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India's rupee slumps to new record low against dollar

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(Globalpost/GlobalPost)

India's rupee plunged more than 3.6 percent to a new record low against the dollar on Wednesday as concerns about a US-led military strike in Syria compound ever deepening economic woes at home.

The rupee, one of Asia's worst-performing currencies this year, slid 3.65 percent to 68.66 rupees to the dollar in morning trade, after losing three percent on Tuesday. The benchmark Bombay Stock Exchange index also suffered a sell-off, sinking 2.66 percent.

Wednesday's losses are in line with a global sell-off, with dealers running for cover at the prospect of turmoil in the oil-rich Middle East, while the cost of crude has also hit multi-month highs.

The rupee, like other emerging market currencies, has also been hit by foreign fund outflows as the Federal Reserve considers winding down its vast stimulus programme as the US economy shows signs of recovery.

The plunge comes a day after Finance Minister P. Chidambaram appealed for market calm and insisted India can finance a contentious $19 billion right-to-food measure for the poor and still cut its record current account deficit -- the broadest measure of trade -- whose level has unnerved investors.

"We have done our sums -- there is enough money to provide for the food security bill" and meet the deficit target, "which is a red line that will not be breached", he told parliament late Tuesday.

Chidambaram said the rupee was now undervalued and India would have to be "patient, be firm -- do whatever is required to be done -- and the rupee will find its appropriate level".

The food bill, which economists say would strain government finances, comes at a time of decade-low growth.

The bill, a flagship programme of the ruling Congress party passed by parliament's lower house Monday, is intended to "wipe out" endemic hunger and malnutrition in the aspiring superpower.

The bill is designed to provide food grains to nearly 70 percent of the population, or 800 million people, for as little as one rupee per kilo.

The central bank earlier warned that increased public spending on the bill could deepen the deficit and fuel already high inflation.

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http://www.globalpost.com/dispatch/news/afp/130828/indias-rupee-slumps-new-record-low-against-dollar