MUMBAI: The Reserve Bank of India joined central banks in Indonesia and South Korea in selling US dollars to save the local currency from a sharp slide as investors fled for safety amid worsening sovereign crisis in Europe and deteriorating outlook for emerging economies.
The Indian central bank sold dollars for the first time since Lehman Brothers triggered credit crisis to avert disorderly movement in the currency as it fell to its worst levels in two years. A depreciating rupee may compound the macroeconomic problems as prices of imported goods will surge and worsen the current account deficit. India won't be able to take advantage even if commodity prices ease due to global slowdown. Exporters cheer the slide as they are paid more for the same products.
"India faces the unique challenge of elevated levels of inflation," said Samiran Chakraborty, head of research at Standard Chartered Bank. "Also in the month of August, our trade deficit was unusually large. Risks emanating from the troika of problems- inflation, current account deficit and fiscal deficit-have definitely had an impact on the currency over the longer term."
Re Down 8% Since August
The rupee breached the psychological the 48.01 mark to the US dollar, its lowest since September 2009, due to shortage of greenback, as investors seek dollars as a safe-haven asset when currencies all around are sliding due to sovereign crisis. It ended 0.1% lower at Rs 47.64 as concerns over European debt deepened.
The Indian central bank sold dollars for the first time since Lehman Brothers triggered credit crisis to avert disorderly movement in the currency as it fell to its worst levels in two years. A depreciating rupee may compound the macroeconomic problems as prices of imported goods will surge and worsen the current account deficit. India won't be able to take advantage even if commodity prices ease due to global slowdown. Exporters cheer the slide as they are paid more for the same products.
"India faces the unique challenge of elevated levels of inflation," said Samiran Chakraborty, head of research at Standard Chartered Bank. "Also in the month of August, our trade deficit was unusually large. Risks emanating from the troika of problems- inflation, current account deficit and fiscal deficit-have definitely had an impact on the currency over the longer term."
Re Down 8% Since August
The rupee breached the psychological the 48.01 mark to the US dollar, its lowest since September 2009, due to shortage of greenback, as investors seek dollars as a safe-haven asset when currencies all around are sliding due to sovereign crisis. It ended 0.1% lower at Rs 47.64 as concerns over European debt deepened.
