The Indian rupee hit a record low of 70 to the dollar on Tuesday as emerging market currencies are sold off by investors spooked by the Turkish financial crisis, reports Agence France-Presse.
The under-pressure rupee touched 70.09 briefly during mid-morning trade as fears grow that the plight of Turkey’s lira will spread to other emerging countries.
South Africa, Argentina, Mexico, Brazil and Russia have all seen their currencies slip over the past week because, like Turkey, they remain heavily dependent on foreign capital, especially the dollar.
The rupee has been on a downward spiral throughout 2018 after starting the year at 63.67.
India is a massive net importer of oil, securing more than two-thirds of its needs from abroad.
Brent Crude was up 20 cents at $72.81 per barrel on
Tuesday, well above prices of around $50 at the same time last year.
Analysts say the high crude costs are squeezing the Indian currency, making it less appealing to traders.
‘Investors are concerned that the rupee has crossed the 70 benchmark today,’ N. S. Venkatesh, chief executive of the Association of Mutual Funds in India, told AFP.
But he added that he expected the currency to stabilise at around 69, describing India’s economy as ‘strong’.
‘The Reserve Bank of India’s monetary policy has shown concern for the rupee’s fluctuations so investors should not be worried by knee-jerk reactions in the forex market,’ Venkatesh said.
A senior official of the finance ministry, however said India would not be concerned if the rupee currency fell to 80 against the dollar after hitting an all-time low of 70.1 on Tuesday, as long as other currencies also depreciated, reports Reuters.
Subhash Chandra Garg, economic affairs secretary at the finance ministry, said the rupee was still performing better than some other currencies and the country had sufficient foreign exchange reserves.
‘Even if the rupee falls to 80, it will not be a concern provided other currencies also depreciate,’ Garg told reporters when asked about the currency’s impact on the Indian economy.
He said the rupee’s fall was mainly due to external factors and any further selling of dollars by the Reserve Bank of India (RBI) - it has already spent about $23 billion on intervention - may not help to further stabilise the rupee.
Analysts said the falling rupee could lead to higher inflation as Indians pay more for imported goods and services. Opposition politicians blamed the government’s economic policies.
‘The Indian rupee just gave the Supreme Leader a vote of no confidence, crashing to a historic low,’ Rahul Gandhi, president of the main opposition Congress party, said in a tweet referring to his rival Modi.
India’s central bank has raised interest rates twice this year, in part to help increase the value of the rupee, adds AFP.
Its fall is leading to a widening of India’s current account deficit, when the value of imports exceeds the value of exports, experts say.
Last week, the International Monetary Fund predicted that the deficit would expand to 2.6 per cent for the 2018-2019 fiscal year.