Wednesday, August 28, 2013

Indian economy stares into abyss as rupee keeps falling - Hindustan Times

Continuing its free fall on Wednesday, the rupee fell to a lifetime low of 68.85 against the dollar before closing at 68.80, registering its biggest single-day loss of 256 paise.

Fears of a possible US-led military strike against Syria increasing crude oil prices, which touched a two-year peak of $117/barrel, raised the spectre of India's current account deficit going out of control and spooked investors.

In tandem with the rupee slide, the Indian stock markets also tanked in the morning, but recovered later. The BSE Sensex crashed 520 points or almost 3% in the morning to 17,448.71 before massive buying by LIC and some domestic mutual funds lifted the Sensex to 17,996.15, a 28 point gain over its previous close.

Many investors moved to a safe haven investment like gold, which scaled a new peak of R34,500, up R2,500.
In three trading days this week, the rupee has lost 560 paise, or 8.9%, against the dollar. So far in August, it has tanked 840 paise, or about 14%, and in the current financial year about 25%.

A stockbroker reacts as he monitors share prices during intraday trade at a brokerage firm in Mumbai. (AFP Photo/File photo)

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Commerce minister Anand Sharma and economic affairs secretary Arvind Mayaram tried to soothe the frayed nerves of investors but to little avail.
"There is no need to panic. The Indian economy is strong and we will turn it around," Sharma said.
"This is an irrational sentiment. It will correct itself," Mayaram added.

"The fear of a possible US-led military attack on Syria is leading to considerable outflows from emerging markets," said Sugandha Sachdeva, currency analyst, Religare Securities.

The rupee opened at 66.90 a dollar against its previous closing of 66.24 and dropped to 68.75 in late morning deals. It recovered some ground in the afternoon after the central bank was said to have intervened but dropped to an all-time intra-day low of 68.85 before ending at 68.80, a fall of 3.9%.
Consistent dollar demand from banks and importers, mainly oil refiners, following higher crude oil prices, kept the rupee under pressure.

AFP Photo

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Oil prices climbed on fears a military strike against Syria for alleged use of chemical weapons against civilians would disrupt crude supplies from West Asia.
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