Indian jitters over free falling rupee

It is the worst performing of all major Asian currencies.

NEW DEHLI: India’s rupee, Asia’s worst performing currency this year, could be bound for “uncharted waters,” analysts say, as fears about eurozone debt and a slowing economy pump demand for the dollar.

The rupee slipped to 51.20 per dollar Friday - a 32-month low - with no sign that it has bottomed out.

“There’s nothing preventing the rupee heading into uncharted waters. We don’t really know where it will stabilise against the dollar,” Abheek Barua, chief economist of India’s HDFC bank, told AFP.

The rupee has fallen 15 percent since July on worries over the debt crisis and concern about deceleration in Asia’s third-largest economy, sparked by 13 rate hikes that have failed to curb near double-digit inflation.

Former chief Indian government economic advisor Shankar Acharya has warned the economy could grow by under seven percent in the financial year ending March 2012 - down from 8.5 percent last year.

While exports will be cheaper, currencies of other countries have also fallen against the dollar, although not as much, diminishing India’s advantage.

India’s central bank has expressed hesitation about intervening to support the rupee, suggesting it may not even have the resources.

India’s foreign exchange reserves of around $320 billion are just one tenth of neighbouring emerging market giant China’s.

Not only is the rupee the worst performer among major Asian economies, so is India’s share market which has fallen over 21 percent since the start of 2011. The rupee touched a record peak of 39.40 to the dollar in February 2008.

It began unravelling when Lehman Brothers collapsed later that year, triggering the last global financial crisis, and struck its lowest level of 52.20 rupees to the dollar on March 2, 2009 when global stock markets dived.

Diminishing India’s appeal to foreign investors and piling pressure on the rupee have been a slew of government corruption scandals, accusations of “policy paralysis” and a worsening fiscal situation with the administration overshooting borrowing targets for the second half of the year by 32 percent.

“On a bad day one often wonders how it (India) functions at all, let alone how it evolved to be Asia’s second-fastest growing economy,” investment house CLSA Asia Pacific Markets remarked in a sharply worded critique of the government’s handling of the economy.

Published in The Express Tribune, November 21^st, 2011.