By Swati Bhat and Rafael Nam
MUMBAI Aug 28 The Indian rupee slumped to a
record low below 68 per dollar and shares tumbled on Wednesday
on growing worries that foreign investors will continue to sell
out of a country facing stiff economic challenges and volatile
Foreign investors sold nearly $1 billion of Indian shares in
the eight sessions through Tuesday - a worrisome prospect given
stocks had been the country's one sturdy source of capital
inflows, although net purchases so far this year still total $12
The partially convertible rupee hit a record low of
68.75, down 3.7 percent on the day, after posting its biggest
daily percentage fall in 18 years on Tuesday.
"It is just impossible to put any realistic value to the
rupee any more," said Uday Bhatt, a forex dealer with UCO Bank.
The need to attract foreign capital is critical for a
country whose record high current account deficit is a key
reason behind the rupee's slump. Yet policymakers have
consistently struggled to come up with measures that can
convince markets they can stabilise the currency and attract
funds into the country.
That failure is becoming an increasing source of tension for
India at a time when fears of a possible U.S.-led military
strike against Syria are knocking down Asian markets, with
prospect that the Federal Reserve will end its period of cheap
money as early as next month further raising concerns.
In its latest initiative, the government late on Tuesday
proposed setting up a task force to look into currency swap
agreements, a measure analysts said could bring some relief if
carried out in time by reducing market demand for dollars or
other major currencies.
"Lets see what the authorities do, but if the government can
come out with some really big currency swap arrangement with
some countries, that can be a strong positive," Bhatt said.
The rupee has now fallen around 19 percent so far this year,
by far the biggest decliner among the Asian currencies tracked
Meanwhile, India's main NSE index fell more than 2
percent while 10-year bonds yields rose to as
high as 9.04 percent.
The rupee has failed to rebound despite a slew of measures
by policymakers, including extraordinary measures by the central
bank to drain liquidity unveiled last month and action to curb
gold imports and cut on India's oil import bill.
Whether that can be enough remains in doubt given bond
yields are surging, threatening to raise borrowing costs across
the already slowing economy, while global prices of oil and gold
- the country's two biggest imports - have surged this week.
Foreign investors have started to pare down their equity
positions, having sold a net $3.5 billion in stocks since the
start of July.
In bond markets, foreign investors have sold more heavily,
with outflows reaching $4.5 billion so far this year.
Finance Minister P. Chidambaram said on Tuesday the
government would need to do more to revive an economy growing at
the slowest in a decade and narrow a current account deficit
that hit a record high of 4.8 percent of gross domestic product
in the year ended in March.
Those comments came after the government approval of
infrastructure projects were overtrumped by concerns about the
fiscal deficit after India's lower house of parliament this week
approved a 1.35 trillion rupees plan to provide cheap gain to