MUMBAI, India (AP) — The Indian rupee plunged to an all time low against the dollar Tuesday as global demand for dollars and India's darkening economic picture swamped out central bank efforts to staunch the decline.
The rupee hit 52.72 to the dollar, breaching its March 3, 2009 low, analysts said.
Slowing growth, a swelling current account deficit and waning investor interest in India are adding to pressure on the rupee amidst a global scramble for dollars as investors flee the euro.
A weaker rupee drives up the cost of imports — including oil, which accounts for much of India's import bill — aggravating troublesome inflation and the growing current account deficit. It also strains Indian companies that didn't forsee such a sharp swing and failed to hedge their dollar exposure.
The central bank was quick to lay blame on "global dynamics," in particular Europe's sovereign debt crisis, and did not rule out intervention.
"We are watching the market," Reserve Bank governor D. Subbarao told reporters. "Our policy remains the same which is to manage volatility in the exchange rate and to insure the exchange rate movement does not impair our macroeconomic stability."
Analysts say the central bank has been buying rupees in recent days, but demand for dollars has been overwhelming.
The bank has declined to comment on intervention.
The rupee could fall to 53 to the dollar, said Atul Shah, chief operating officer at Emkay Commotrade Ltd. "It's bad for the economy."
Unlike many of its neighbors, India runs a trade deficit, making it more vulnerable to foreign capital flows.
The currency is one of the worst performing in the region this year.
Many economists have lowered annual growth forecasts to between 6.5 percent and 7 percent, down from earlier projections of 8 percent growth, after aggressive interest rate hikes and signs of tempering domestic demand in India.
Foreign investors have invested a net 2.96 billion rupees ($55.5 million) in Indian equities so far this year, down from 1.33 trillion rupees in all of last year, according to India's market regulator.
Optimists note that a weaker rupee is good for exports and say the need for foreign currency may encourage the government to act on long-standing promises to loosen foreign investment controls.
The benchmark Sensex index reversed an 8-day decline Tuesday, rising 1.4 percent to 16,174 in midday trade.
