MUMBAI The Indian rupee fell to a record low on Monday and looked poised for further losses, with a series of measures unveiled last week failing to stall its decline.
The currency fell as far as 62.46 to the dollar in early trade, breaching the previous low of 62.03 hit on Friday.
Some dealers are expecting further dollar selling by the central bank as well as other measures to prop up a currency that is down 10.8 percent in 2013, making it the worst performer in emerging Asia.
Traders seemed unconvinced about the efficacy of steps unveiled last week to contain the current account deficit at 3.7 percent of gross domestic product (GDP) during the current fiscal year, sharply lower than the record high 4.8 percent in the previous year.
"Forex intervention will continue by the central bank. Further measures are expected from the RBI but are unlikely to be effective. The rupee is expected to touch 63 in no time," said Param Sarma, chief executive at Brokerage NSP Forex.
The partially convertible rupee closed trading at 61.65/66 last week.
Finance Secretary Arvind Mayaram told the Economic Times that the government was not looking for now at taking further steps to tackle the rupee's fall, but wanted to watch the impact of its recent measures. (link.reuters.com/fub52v)
The rupee's tumble has fuelled expectations of more action from the Reserve Bank of India (RBI), which last week curbed outflows from companies and individuals, roiling stock and bond markets on Friday. Policymakers later stepped in to assuage nerves that the government was not looking at curbing foreign money outflows.
"Our primary concern is that the policy authorities still don't 'get it' - thinking this is a fairly minor squall which will simmer down relatively quickly with fairly minor actions," Robert Prior-Wandesforde, an economist at Credit Suisse, wrote in a note on Monday.
"If this remains the case, then a swift move to 65 against the U.S. dollar is probable, which in turn should help focus minds."
The rupee has been the worst performer in Asia since late May, when the U.S. Federal Reserve first signaled that it may begin tapering its monetary stimulus this year, sparking an exodus of cheap money from emerging markets worldwide.
"The panic is overdone. Foreign exchange reserves are more than adequate. We also think inflows would gradually start to come in while the RBI will also continue to intervene in the market," said Samir Lodha, managing director at QuantArt Market Solutions, a consultancy and brokerage in Mumbai.
Net outflows from the bond and equity markets have totaled $11.4 billion since late May.
The bond market has borne the brunt of the outflows, with foreigners taking out around $10 billion since May 22.
Equity markets have remained relatively insulated with outflows from the cash market at less than $100 million on Friday, when the main stock benchmarks fell about 4 percent, the most in nearly two years. Heightened selling in equities could exacerbate the rupee's falls, dealers feared.
Mumbai's main stock index .BSESN fell 1.2 percent on Monday.
Traders in Hong Kong reported continued selling in Indian bank cash bonds as fast money increased short positions and increased protection buying widened credit default swap spreads.
Analysts also are concerned about growing bad loans in the June-quarter earnings of lenders like State Bank of India as slowing economic growth spurs defaults by companies and individuals.
State Bank of India at mid-315 basis points (bpd) has soared from end-May lows of 180 bps.
Government bond yields remained at 21-month highs with the 10-year bond at 8.95 percent, up 7 bps.
India will sell 110 billion rupees of cash management bills on Monday as part of the central bank's ongoing efforts to tighten cash.
(Additional reporting by Swati Bhat in Mumbai and Umesh Desai in Hong Kong; Editing by Tony Munroe & Kim Coghill)