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India's rupee slumps to new record low against dollar

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(Globalpost/GlobalPost)

India's currency plunged past the 68 rupee level to a new record low against the dollar Wednesday as concerns about a US-led military strike in Syria compounded deepening domestic economic woes.

The rupee, one of Asia's worst-performing currencies this year, was down 3.13 percent at 68.38 rupees to the dollar in midday trade, retracing from a new lifetime low of 68.74 rupee hit earlier in the day, according to Indian dealers.

The rupee, which slid three percent against the US unit Tuesday, has lost more than a fifth of its value against the dollar since the start of 2013 and over six percent since the beginning of the week.

The benchmark Bombay Stock Exchange index was down 1.66 percent at 17,676 points after being down nearly three percent earlier in the day. Some stocks were trading at multi-year lows.

Wednesday's losses coincided 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.

HDFC analyst Ashutosh Raina said the rupee was suffering from geopolitical tensions and domestic pressures.

"The flight to seek dollar safety is expected to intensify pressures on the rupee in the short term," Raina added.

But other reasons for the rupee's drop are home-made -- failure to move fast enough on economic reform, a series of government corruption scandals, perceptions of policy paralysis and a record current account deficit, analysts say.

Meanwhile, Standard Chartered Bank said it expected the rupee may hit 70 rupees to the dollar before it strengthens.

"It is technically oversold but there is very little buying interest that we can identify at the moment," Nick Parsons, head of markets strategy at the National Australia Bank, told India's Moneycontrol financial portal.

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

The rupee's latest 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 programme 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", Chidambaram told parliament.

Chidambaram said 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.

Forex dealers said also dragging down the rupee was traditional strong month-end demand for the US currency from importers.

Analysts said further falls could be in store for markets with first-quarter growth data due Friday expected to show that India's economy is in a deepening slowdown.

The once-booming economy grew five percent last year, marking a decade low.

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http://www.globalpost.com/dispatch/news/afp/130828/indias-rupee-slumps-new-record-low-against-dollar-0