The Indian rupee and its Pakistani counterpart both plunged against the U.S. dollar on Monday. The Indian currency fell 81 paise against the greenback at the end of Monday’s trading sessions to 66.64/dollar, its lowest level since September 2013. On the other hand, the Pakistani currency declined Rs 2.10 on Monday to reach a 17-month low of 104 per dollar.
KSE, BSE tumble, too
According to Dawn News, major exporter groups in Pakistan were trying to create instability by purchasing huge amounts of the dollar. The State Bank of Pakistan (SBP) said it was monitoring the trading of the U.S. dollar. The central bank has instructed currency dealers to reduce the sale and purchase of the greenback. The Karachi Stock Exchange (KSE) benchmark index also slumped 1,419 points to close at 33,100 on Monday.
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Asian markets slumped Monday amid fears of a China-led global economic slowdown. The Indian rupee continued its downward trend following strong dollar demand from importers and banks. Heavy capital outflows also affected the Indian rupee. The benchmark Bombay Stock Exchange (BSE) cracked 1,624 points to close Monday at 25,741.
RBI may step in to curb volatility in the Indian rupee
However, the Reserve Bank of India (RBI) governor Raghuram Rajan tried to alleviate fears of further volatility in the Indian rupee. Rajan said the central bank will have no “hesitation” in using its vast forex reserves to stabilize the currency. RBI has approximately $370 billion in forex reserves. India’s narrowing fiscal deficit, low current account deficit, low short-term liabilities, and moderate inflation will help the country weather a global slowdown, he added.
Raghuram Rajan said India was in a far better position than other countries, and its macro-economic issues were “under control.” However, he reiterated that the country should focus on boosting domestic production to protect itself against the economic slowdown in other countries. Unlike the People’s Bank of China (PBOC), the RBI doesn’t target a specific level for the Indian rupee, though it may intervene in the forex market to curb volatility.
Indian rupee came under pressure after China devalued yuan earlier this month. PBOC’s move fueled concerns that China could further devalue yuan in case its economy falters.