India’s Rupee Slides to a Record Low

Topics: Macroeconomics, Investment, Capital accumulation Pages: 2 (443 words) Published: September 13, 2013
Source: Bloomberg Business Week
Title: India’s Rupee Slides to a Record Low
Author: Roben Farzad

According to the author the Indian rupee hit a record low 62.005 per dollar before closing at 61.655 in Mumbai. He also mentions that Bombay Stock Exchange (BSE) equity index drops by 4%, largest drop in nearly 2 years and the yield on India’s 10 years government bond is at its highest since 2011. He mentions capital flight (Assets rapidly flowing out of a country or region), slow economic growth rate (9.3% for 2010-11 vs 4.8 % for 2012-13) and inflation are the main reasons for the Rupee fall. Interest rates, unemployment, foreign exchange reserves, banking capital and commodity prices also affect the value of the currency not mentioned by the author. India runs a large current account deficit. India is the world’s biggest importer of gold, they import a third of the world supply every year. Gold is the country’s biggest foreign purchase after oil. By buying up billions of dollars of oil and gold they are sending Indian rupee overseas, distributing the balance money entering and leaving the country, and thus driving down the rupee value. High oil price and Indian crazy bullion imports inflated the import bills and resulted in further widening the current account deficit, which accelerated the rupee fall. According to reports at 100% daily inflation commodity prices double in 24 hours. In view of this, in a recent press conference Indian Prime Minister P. Chidambaram said “If for one year there are no gold imports, it will change the current account deficit story of the country”. He also mentioned “I once again appeal to everyone to resist the temptation to buy gold”. Growing trade deficit forces the country to devalue its currency. This scares people and foreign investments out of India. That results in fewer investments and lesser growth, and thus further weakening of rupee. In order to control rupee fall, the government introduced capital controls on...
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