Indian rupee in biggest one-day plunge

In its biggest one-day plunge since 1995, the Indian rupee slumped to a record low of nearly 69 to the dollar on Wednesday in a clear indication that a historic breach of 70-mark is unstoppable and imminent.

Amid growing worries that foreign investors will continue to exit a country facing severe economic challenges, the selloff in markets sent the rupee nose-diving 3.7 per cent to an all-time low of 68.85 per dollar, its biggest single-day fall since October 1995.

The steep fall in rupee despite several measures by the Reserve Bank of India is also feared to have its immediate repercussions in the Gulf property sector where Indian investors have been playing a prominent role. The unfavourable exchange rate and RBI’s new restrictions on foreign investments will keep at bay Indian investors from Gulf’s property market, at least in the short run, said a Dubai-based real estate analyst.

The rupee, the world’s worst major performing currency so far this year, has slumped around 24 per cent over the past 12 weeks, and a breach on the psychologically key 70 level now seems imminent. “There is little hope of a sudden recovery for the rupee as the panic is escalating among importers. At the current phase, the rate could even touch 72 per dollar in a matter of days before the currency regains its intrinsic strength,” a currency analyst said.

He said the severe shortage of greenback remains in the market as traders expect the rupee to fall to 70-72 level.

On Wednesday, the dirham touched 18.78. Kuwaiti dinar is now worth Rs240, Bahraini dinar Rs180 and Omani rial Rs175.

Persistent dollar demand from banks and importers kept the rupee under pressure as Asia’s third largest economy grappled with a record high current account deficit, growing fiscal pressures and the slowest growth in a decade.

International investors have withdrawn nearly $12 billion from India’s markets since the beginning of June on concerns that the US will begin to slash its $85 billion a month bond purchase stimulus. Aggravating investor nervousness was fears that India’s $20 billion food subsidy plan would increase the budget deficit and the prospects of a jump in oil prices amid concerns of military action against Syria.

issacjohn@khaleejtimes.com