Sep 11 2008
Indian Rupee plummets to a two year low
The Indian rupee registered a slump to reach its lowest level in almost 2 years. This has been a result of unprecedented speculation and fluctuating forex market amongst the investors and importers who decided to shun the Rupee and stepped up the purchase of the Dollar after witnessing the rally of the US currency against the Euro. With worldwide strengthening sentiments for the Dollar the momentum against the Rupee has gathered speed. Along with the Rupee dropping for the third day, 8 other active Asian currencies have registered the same fate. The Indian benchmark stock index (BSE Sensex) also witnessed a fall of almost 29% this year heralding it towards the first annual loss registered since the year 2001.
In times when the Dollar supply is very small and limited the importers holding short term liabilities have started covering aggressively thereby aggravating the problem. The Rupee was trading at 45.46 against a Dollar which is a fall of about 0.6% in accordance to the lowest it had reached as on 16th October 2006. This downfall has marred the impressive growth of 12.2% shown by the rupee last year when it had touched its decade high level of 39.185 a dollar. It is not only the Indian Rupee against which the Dollar has shown strengthening but all the other 16 major currencies being traded in the market too have met with the same fate. This decline of major currencies has been attributed to the bad state in which the commodities are today. This slump in the Indian currency may be tempered by the surrounding speculations which indicate a possible intervention by the Reserve Bank of India to assess and take stock of the situation because a weak currency has the potential of adding fuel and aggravating the already increasing inflation in the country. The central bank is expected to curb this volatility of the Rupee by actively arranging sales and purchases of foreign currencies.
The Indian foreign currency reserves too have registered a drop in almost 3 weeks of the time frame starting June which clearly shows indications and signs of the Reserve Bank selling Dollars with the aim of halting or slowing down the pace with which the value of the Rupee was depreciating. The Indian foreign currency reserve too is seeing a decrease and was pegged at a six month low of $286.1 billion in the week ending August 29th.