This Article is From Aug 16, 2013

Rupee breaches 62 to hit record low against dollar

Rupee breaches 62 to hit record low against dollar

The Indian rupee breached the psychological 62 mark against the U.S. dollar on Friday indicating that the many measures being taken by the government and the Reserve Bank are not proving effective.

The rupee surpassed the previous all-time low of 61.80 hit just last week and traded nearly 1 per cent lower from Wednesday's close of 61.43. The partially convertible rupee was trading at 61.87/89 per dollar at 10.26 a.m., after hitting a record low of 62.03.

Traders said no Reserve Bank of India intervention had been spotted so far amidst strong dollar demand from foreign funds and importers.

Concerns that the Reserve Bank's measures to curb capital outflows would prove insufficient also heightened anxiety levels in markets.

"We are in a crisis situation. The market sentiment is getting more pessimistic by the day and the rupee continues to be the major headwind. The macros have completely clouded the micros," Mehraboon Irani of Nirmal Bang Securities said.

There are also worries about a rollback of U.S. monetary stimulus, which could lead to a sharp exodus of funds from the country, creating difficulties in financing the record current account deficit.

Earlier this week, the central bank imposed restrictions on foreign exchange outflows and gold imports in a new attempt to prop up the currency. The Reserve Bank of India's latest steps to support the currency included cutting the amount of overseas direct investments allowed by Indians.

Separately, the central bank banned imports of gold coins and bars, which constituted about 36 per cent of total bullion demand in India last year, and will require domestic buyers to pay cash for the yellow metal, among other measures.

The steps came as data showed the headline inflation rate jumped above the central bank's target range of 4 to 5 per cent in July for the first time since March, making it even harder for the bank to refocus on supporting India's slowing economy.

The Indian authorities fear continued falls in the rupee will exacerbate the current account deficit in the short term, deter investment and further curb growth in Asia's third-largest economy.

RBI's action to tighten rupee liquidity in mid-July and other steps have failed to halt the slide in the currency, which set new record lows on August 6.

(With inputs from Reuters)