The Indian rupee tumbled to all-time low today 63.30 against the dollar, as recent measures failed to stem the fall.
The Indian rupee closed at a life-time low of 63.13 despite the Reserve Bank of India’s recent measures to restrict capital outflows.
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RBI’s recent measures
India’s central bank, Reserve Bank of India, took s series of measures to stem the fall of the Indian rupee.
Last week, the RBI announced stern measures curbing Indian firms investing abroad and on onward remittances by resident Indians. However, to pacify the rattled investors, on Friday the government and the RBI ruled out reverting to a capital control regime.
The Reserve Bank of India initiated steps to raise short term interest rates last month and reduce market liquidity, which also had little impact on the falling Indian rupee.
Indian Rupee’s fall mirrored in other markets
The Indian rupee tumbled nearly 13 percent against the dollar this year, making it the worst performer in emerging Asia.
Mirroring the Indian rupee’s fall, the benchmark 10-year bond yield surged 35 basis points today to 9.23 percent. Today’s yield on 10-year benchmark is the highest seen since August 1, 2008, before the collapse of Lehman Brothers.
The cost of insuring debt of country’s largest bank, State Bank of India, jumped today to 14-month high. The five-year credit default swaps (CDS) on SBI surged 45 basis points to 351. As India doesn’t have any traded sovereign debt outstanding, investors prefer using the SBI’s instruments as a proxy to hedge exposure to India.
The Indian rupee’s fall also echoed in the 28-day cash management bills. Today, the central bank has set a cutoff of 12.2370 percent as against 11.7066 fixed last week for 35-day paper.
Apart from the surge in the bond yield, the Indian rupee’s fall took a toll on the country’s equity markets as well. Last Friday, the country’s main stock benchmark posted the major fall in nearly two years by falling about 4 percent.
Citing several economists, Subhadip Sircar and Swati Bhat of Reuters feel the central bank’s liquidity tightening measures will persist longer than initially anticipated and might result in cut in India’s economic growth forecasts for the current fiscal year.