The Indian currency has slumped 11.8 per cent this year as global investors were net sellers to the tune of $7.1 billion.
India's rupee slumped for a fourth week on speculation that economic slowdown in the US and Europe will prompt global funds to shun emerging-market assets.
The local currency dropped to a 21-month low versus the dollar, sliding in tandem with currencies across Asia, as regional stocks tumbled. The dollar rallied to an 11-month high against the euro as European Central Bank President Jean-Claude Trichet said the economy is “weak” and crude oil fell to a five-month low this week.
“The sentiment is strengthening across the board for the dollar, contrary to what the situation was a few months earlier,” said P V Rao, a currency trader at IndusInd Bank in Mumbai. “The pressure on the rupee is inevitable after the losses in Asian stock markets today.”
The rupee fell 1.7 percent to 44.66 per dollar this week, the lowest since December. 20, 2006, according to data compiled by Bloomberg. The MSCI Asia Pacific Index dropped 6.6 percent this week and the Mumbai Stock Exchange Sensitive Index slid 0.6 percent.
The Indian currency has slumped 11.8 percent this year as equity sales by global investors exceeded their purchases by $7.1 billion. India's economy expanded 7.9 percent in the three months ended June, the slowest pace since the last quarter of 2004, a government report showed last week.
Strong dollar, cheaper oil
The Dollar Index traded on ICE futures exchange, which gauges the greenback against the currencies of six major US trading partners, reached 79.077, the highest in almost a year.
The rupee also declined on speculation that importers including Indian Oil Corp, the nation's largest refiner, bought foreign currency, to take advantage of a drop in the cost of crude oil. Crude prices in New York have tumbled more than 27 percent since reaching a record $147.27 a barrel on July 11.
“The rupee is in a zone which is a matter of concern if you are an importer,” said V Rajagopal, chief currency trader at Kotak Mahindra Bank in Mumbai. “The bearishness on the rupee will deepen further.” The rupee may fall to as low as 45.15 in the near term, believes Rajagopal.
The author is a Bloomberg News columnist. The opinions expressed are his own.
