The Indian rupee slid back towards a record low today, with investors braced for a statement on the state of economy from prime minister Manmohan Singh and the release of data that was expected to show India in the grip of a protracted slowdown.
Weak economic growth, a record high current account deficit and concerns about the government’s finances are proving a toxic mix for the rupee, which hit a record low of 68.85 on Wednesday. The currency has fallen by some 20 per cent since May.
The Reserve Bank of India had prompted the rupee's largest single-day rally since January 1998 yesterday by saying it would provide dollars directly to state oil companies to pay for imports, but the recovery proved short-lived.
By late morning, the partially convertible rupee was trading at 67.36 per dollar, down from last night close of 66.55. Having tumbled 10.4 per cent against the dollar so far this month, the rupee was set to record its largest monthly depreciation ever, according to Reuters data.
The fall has been so fast that is now firmly in territory that is uncharted, leaving analysts unsure how far it can go.
Gross domestic product data, due to be released after the markets close, is expected to show the economy grew 4.7 per cent in the April-June quarter, marking a third consecutive quarter of sub-5 per cent growth.
India suffered decade-low growth of 5 per cent in the fiscal year that ended in March, and many analysts expect this year to be worse.
"The lack of affirmative action by the government on improving the investment cycle in rest of the year risks reviving a downward spiral, which might pave the way for slip below 4 percent mark, as a worst case scenario," said Radhika Rao, an economist at DBS in Singapore, in an email to clients.
With a national election due by May, Mr Singh’s minority government is under fire from all quarters to come up with meaningful reforms, including a possible increase in diesel prices, that would lower the subsidy burden.
While the government gropes for game-changing policies to revive investment, while containing its fiscal deficit and reducing the current account gap, the central bank has led the defence of the currency.
India’s lower house of parliament yesterday approved a land acquisition act, which is meant to help investment in industry and infrastructure, while protecting farmers interests by letting them get up to four times the market rate for their land. Critics say the new law will hardly help revive the floundering economy.
Reuters
