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Indian rupee hits fresh record low against dollar

Investors are pulling money out of emerging economies amid fears the U.S. Federal Reserve will wind down stimulus spending.

Indian rupee 18082013Enlarge
A customer receives a wad of Indian rupee notes from a foreign exchange dealer in Mumbai on August 6, 2013. (AFP/Getty Images)

Investors are losing confidence in India at a rate of knots, with the rupee hitting a fresh record low against the dollar on Monday and bond yields surging to five-year highs.

Efforts by the central bank and government to prop up the rupee appear to be failing as the currency hit a new low of Rs62.70, extending its losses against the greenback to 12 percent this year, making it the worst performing currency in Asia.

The yield on the benchmark 10-year bond rose 35 basis points to 9.23 percent as prices fell, signalling weakening demand. 

Emerging markets such as India have been hard hit by speculation the U.S. Federal Reserve will starting paring its $85 billion of monthly bond purchases in the coming months.

This is driving up demand for the U.S. dollar, which is seen as a safe-haven currency during periods of economic uncertainty.

But there are also domestic factors weighing on the Indian currency.

Slowing growth and rising consumer prices have investors worried about the economic outlook for Asia’s third-largest economy.

Recent data showed industrial production – which measures output from the country’s thousands of factories and workshops – fell 2.2 percent in June from a year earlier.

Consumer prices rose 9.64 percent year-on-year in July, while economic growth hit a decade-low 5 percent in the 2012-13 financial year. 

More from GlobalPost: What’s really holding back growth in India

http://www.globalpost.com/dispatch/news/regions/asia-pacific/india/130819/indian-rupee-record-low-against-dollar