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 21st, 2011.
COMMENTS (10)
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@Anonymous:
Unfortunately the words of Goldman Sachs and Citi group and WB and UN matters a lot more than a pimply ill-informed fellow.
If China can bring down its poverty in 30 years, India surely can. In 20 years of liberalization it has halved its poor, now it will take only 10 years to achieve the same target.
At least I can dream, its realistic. You are stuck in a world of horrors. I will die a proud man regardless of what is the percentage of poor. You have a real chance of being blown up against your wishes.
@ siddiq khan mahar
in another 100 years China would have broken into 5 pieces.
The economic growth rate between six to seven percent is still quite healthy for a bounce back within six months to one year. The grace of Almighty is with secular India which unites the people of all religions of different sects and that gives us the strength to come out of a difficult situation.
@Hu Jintao:
Only solace for the people who can't get any better is the glimmer of hope that their opponents get worse.
That's a great indicator of a nation's self-esteem along with chronic delusional self-deception.
800 million people openly defecate on public streets 75+ % of populations earns below $2 a day
Above facts are great economic indicators.
@BruteForce
What's the Indian obsession with being the World's largest? It'll only be largest in terms of the total PPP GDP. Where it actually matters: India will still be one of the poorest in terms of per capita nominal GDP. You will die much poorer than an American or even Chinese. Sorry.
@siddiq khan mahar:
What great economic insight. Take a bow.
With your great knowledge in economic matters why dont you write to the Citi group explaining why they are wrong in saying this: "China should overtake the US to become the largest economy in the world by 2020, then be overtaken by India by 2050".
http://news.in.msn.com/national/article.aspx?cp-documentid=4956815
Actually you were right, but went wrong with the timelines. It wont take 100 years, but only 39. I can rest assured that I will die in the World's largest economy.
A very weird phenomenon I must say. Basic economics says that a currency is likely to rise in value when money supply is tightened by the central bank. Reserve Bank of India increased rates, yet the Indian Rupee has weakened.
Perhaps maybe investors who hold Indian Rupee are worried about structural weaknesses in the India economy. Like for example the high inflation caused by heavy government borowing has made Indian exports uncompetitive? Or maybe this is due to a "correction" in Indian equity markets.... pull out of Foreign Portfolio Investors from India equity markets who fear slower growth will reduce earnings. Or more plausible; a combination of the two or more factors which I overlooked in this post.
India is highly capable of bouncing back only if they could firstly put their governance issues in order and secondly, focus on reverse brain drain.
Indian need another more 100 year to beat china,because Indian economy is not mature enough.Economics called them infant Economy.