MUMBAI: The Indian rupee slumped to a record low near 69 to the dollar on Wednesday on growing worries that foreign investors will continue to sell out of a country facing stiff economic challenges and volatile global markets.
The pummelling in markets sent the rupee reeling 3.7 percent to an all-time low of 68.85 with the unit closing just a touch off that, at 68.80/81 per dollar, its biggest single-day fall since October 1995.
It closed on Tuesday at 66.24/25.
In absolute terms too, the 256-basis-point fall in the rupee was the biggest ever.
An assault on the psychologically key 70 level now appears imminent, as intervention from the central bank seen mid-morning only gave the rupee a brief respite.
In the stock market, state-run Life Insurance Corp, which was spotted buying shares, allowed the domestic benchmark index to erase steep early losses and end the day stronger.
“If steps are not taken to implement the reforms necessary to tackle the structural issues, the government will be left with the so-called ‘3D options’: debt default, devaluation, deflation,” said Angelo Corbetta, head of Asia equity for Pioneer Investments in London.
“In India, devaluation is happening now and deflation could be about to start.
The good news is that the debt default is highly unlikely.”
Foreign investors have sold almost $1 billion of Indian shares in the eight sessions through Tuesday – a worrisome prospect given stocks had been India’s one sturdy source of capital inflows in the first half of 2013