The rupee fell to a record low against the dollar as investors retreated from emerging markets and concerns grew about India’s economic fragility.
Despite repeated attempts to support the currency by India’s central bank this week, the rupee dropped to Rs54.51 in morning trading, according to Reuters data, breaking a previous low late last year.
“Foreign and domestic investors are selling and, if foreign investors sell Indian stocks, they are effectively selling the currency down,” said Saurabh Mukherjea, head of equities at Ambit Capital, a Mumbai-based brokerage. “In the short term, the main driver of demand for the rupee is stock market activity and I fear it will now be one-way traffic for the rupee all the way down to 57 or 58.”
Wednesday’s decline comes despite interventions by the Reserve Bank of India, which are widely believed to be designed to sustain the currency at or around the level of Rs54 to the dollar.
Analysts pointed to the likelihood of further falls, citing pressures from India’s widening current account deficit and unusual vulnerability both to increases in oil imports and reductions in foreign investment flows.