Tuesday, the Indian rupee slumped to its lowest level in nearly 3-weeks against the US dollar as a fall in stock prices increased expectations of further foreign fund outflows from local shares.
Indian shares fell 3.6 per cent in early trade today. Foreign funds have sold a net $13 billion worth of Indian stocks so far this year after buying a record $17.4 billion in 2007.
Other Asian stocks also declined today after Citigroup cut 52,000 jobs in a dramatic move to save itself and downbeat policymaker comments reflected worsening economic conditions that will unlikely improve until well into 2009.
U.S. stocks closed lower in a volatile session yesterday as massive job cuts by banks and a weak manufacturing report signaled an accelerating global slowdown. News that Japan, the world's second-largest economy, has joined the Euro zone in recession also weighed on investor sentiment.
The rupee dropped to 49.8250 per dollar today, its lowest level since October 29. This may be compared to Monday's New York session close of 49.0750. If the Indian currency weakens further, it may likely target the 50.3 level.
The Indian currency is under pressure after reports last week and yesterday showed Hong Kong and Japan sank into recession. India's benchmark stock index fell for a fifth day today as data from the capital markets regulator showed global funds increased sales of local shares.
The rupee also declined today as the financial services provider Citigroup lowered India's economic growth to 6.8% for the current fiscal, compared to its earlier estimate of 7.2%, due to a slowdown in consumption and investment. The financial major also lowered its growth projection for the fiscal year 2009-10 to 5.5% from the earlier estimated 6.6%.
Sales of local shares have caused the rupee to decline to an all-time low on October 27, heading for its worst annual performance since 1991, when India devalued the currency as a balance-of-payments crisis forced it to pawn gold from its reserves.
Though many other competing Asian currencies like the Malaysian ringgit and Thai baht have also depreciated against the dollar, they have fared better than the rupee while the Chinese yuan has actually strengthened against the dollar.
The rupee tumbled to a fresh record low of 50.31 per dollar on October 27, at which point it was down 21.6 percent this year, hit by a widening trade deficit and capital outflows from Indian shares as global financial turmoil led investors to exit riskier emerging markets.
Although the rupee has gained 7% thereafter, it lost ground again after hitting a 1-month high of 46.7050 against the dollar on November 5. Since then, the Indian currency has depreciated 6%.
While a weakening rupee might bring cheer to export-oriented sectors such as IT and textiles, it has pushed up the foreign exchange liabilities of Indian companies. When the rupee depreciates, the value of foreign currency liability denominated in rupee terms increases and vice versa. The falling rupee will severely affect the small companies, whereas the big ones will be impacted only moderately.
A weaker currency also increases costs for companies such as Indian Oil Corporation Ltd., the nation's largest refiner. These companies face losses because under Indian rules they have to sell fuel products at prices below their costs. India meets almost 75 percent of its crude oil needs from imports.
Over the past month, the country's apex bank Reserve Bank of India infused Rs.2,70,000 crore by cutting cash reserve ratio by 350 basis points and statutory liquidity ratio by 100 basis points.
The dollar's strength overseas was also hurting sentiment on the rupee. A further retreat in oil prices supported the dollar. Crude oil prices dropped 3.7% yesterday and closed at its lowest level since January 2007, as the drop in demand for energy became more widespread. Light sweet crude for December delivery ended trading at $54.95 per barrel on the New York Mercantile Exchange, down $2.11 on the session. However, crude oil prices rose to near $56 per barrel today.
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June 19, 2026 16:46 ET Major central banks continued to dominate the economic news flow this week too, led by the Federal Reserve, as they announced their latest policy decisions. The Federal Reserve policy session was in focus as it was the first to be led by the new chief Kevin Warsh. In Europe, central banks of the U.K. and Switzerland announced their rate decisions. In Asia, the Bank of Japan drew attention for its policy moves, while data out of China threw some light on the state of the economy.