Mumbai/New Delhi: The Indian rupee hit another record low Monday, slipping below 63 against a dollar for the first time, and key indices of the stock markets dropped sharply for the second straight session, despite a slew of measures announced by the central bank and the government to defend the currency.
The rupee posted its biggest single-day loss in nearly two years. It slumped by 2.3 percent, the biggest loss since Sep 22, 2011.
The partially convertible rupee slipped to a new record low of 63.30 against a dollar at the inter-bank foreign exchange market in Mumbai, surpassing its previous record low of 62.03 hit on Aug 16.
The rupee ended the day at a record low of 63.13 against its previous session's close at 61.65 against a dollar.
The rupee and the US dollar were on the same footing when India got independence in 1947. This means the Indian currency has depreciated by more than 63 times against the greenback in the past 66 years.
The Indian currency has lost nearly 15 percent of its value since the beginning of the current financial year.
The Indian currency has hit new lows thrice in the past two weeks despite a series of measures announced by the government to curb current account deficit and revive economic growth.
Weakness continued in the equities markets as well. The benchmark Sensex of the Bombay Stock Exchange (BSE) slumped 290.66 points or 1.56 percent at 18,307.52 points after tumbling by nearly four percent in the previous session Friday.
The wider 50-scrip S&P Nifty of the National Stock Exchange (NSE) closed 93.10 points or 1.69 percent down at 5,414.75 points, after shedding over four percent in the previous session.
The government tried to salvage the situation without much success. Finance Minister P Chidambaram hold three-hour-long meeting with key officials to take stock of the situation.
Senior finance ministry officials including secretaries of departments of financial services, revenue, expenditure and disinvestment attended the meeting at North Block in the national capital.
“Capital controls enforced by the RBI seems to have aggravated the rupee slide,” said Anis Chakravarty, senior director, Deloitte in India.
“As we have seen in the past few months, short term measures on liquidity containment or issuing of foreign bonds has not helped. Additionally, economic recovery in advanced economies seem to provide better investment options as against low levels of real interest rates in India,” Chakravarty said.
The Reserve Bank of India (RBI) has recently announced several measures, including curbs on Indian firms investing abroad and outward remittances and putting stricter control on banks dealing in foreign currencies, in a bid to control the outflow of money.
Despite these measures the currency and the equities markets are on the free fall. The rupee continue to hit new record lows almost every week.
“The host of measures taken by the central bank in recent weeks has failed to revive the sentiments. Problems on the domestic front and global uncertainties are putting severe pressure on the rupee,” said Abhishek Goenka, founder and chief executive officer, India Forex Advisors.
“Sensex tumbled by 1000 points in just last two sessions signalling sharp weakness in the markets. On the global front, US treasury yields are increasing, the US dollar is trading flat and locally, Indian bond yields are also increasing which indicates that currently the markets are quite directionless. This calls for a cautious approach,” Goenka said.
The World Bank's chief economist Kaushik Basu, however, said the current situation in the Indian economy could not be compared with the balance of payment crisis of 1991.
“Several people have come to me asking are we back to 1991? That is completely a non-question because if you look at a couple of numbers there is absolutely no comparison,” Basu, a former chief economic advisor in the Indian government, told reporters in New Delhi.