Indian rupee at lowest close in over six years

18 Oct, 2008

The Indian rupee fell to its lowest close in more than six years on Friday, after the main stock index tumbled below 10,000 points intensifying worries of capital outflows. The partially convertible rupee dropped to 48.88/89 per dollar, its lowest close since June 25, 2002 and a shade weaker than Thursday's close of 48.82/83. It fell to a record intraday low of 49.30 last week.
"The stock market closing below 10,000 was a huge blow to sentiment," the head of trading at a foreign bank said. "Only dollar selling by the central bank propped the rupee up above 49 but sentiment remains shaky." The rupee has lost 19.4 percent this year, after gaining more than 12 percent in 2007 when foreign flows into stocks hit a record $17.4 billion.
The unit has also been pressured by a widening trade deficit, following high oil prices over the past few months. Morgan Stanley said India had the biggest trade and current account deficit in Asia, excluding Japan, and forecast the current account deficit to reach $33.8 billion or nearly 3 percent of GDP in 2008/09.
"We believe that the balance of payments deficit will result in increasing the pressure on the exchange rate," it said in note. Data showed heavy central bank intervention in the currency market had failed to stem the rupee's fall.

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