The Indian rupee hit a new all-time low against the US dollar soon after the release of weak economic data which suggested month factory output was down 5.1 per cent.
The Indian currency closed at 53.42 to the greenback on Tuesday, losing 10 per cent of its value since the start of 2011.
“There is only one direction for the rupee now and it is not coming back soon because there is demand but no supply,” Ashtosh Raina, head of foreign exchange trading at HDFC Bank, said in an interview.
“This situation will persist until the global debt issues are resolved.”
FRAIL FACTORY OUTPUT
Meanwhile, India’s industrial performance dropped for the first time in two years and registered a dismal performance. Output from factories and mines slumped 5.1 per cent compared with October last year. Many economists expected a wee 0.5 per cent decline.
The sharp slowdown is seen as a growing sign of economic challenges lying ahead for the third biggest Asian economy after growing at a staggering rate of 9 per cent annually. High growth rates led to the rise of interest rates during the last two years in a bid to contain inflation.
Indian government last week cut its annual growth forecast for the current fiscal year to between 7.25% and 7.75% taking many economists by surprise.
“The IIP numbers are a clear indication of the fact that the slowdown has taken deep roots in the Indian economy,” an analyst at SMC Global Securities based in Delhi said.
“Against this backdrop, I think expectations of 7% GDP growth this year would be very, very optimistic,” Jagannadham Thunuguntla added.
A decline of 6 per cent year-on-year was registered in the manufacturing sector which accounts for about 75 per cent of the industrial output.
Analysts insist India is facing its worst financial crisis in decades and the only way to save Indian rupee from decline will be to make best use of its limited reserves and maintain the confidence of foreign investors.
According to the latest central bank information, the Reserve Bank of India sold assets worth $845 million in September and a further $943 million in October. The intervention measures were taken for the first time this year.
Traders are looking at the RBI (Indian central bank) for any intervention to halt the slide and save them from heavy losses.
Thomas Harr, a currency strategist at Standard Chartered Bank, said investors are selling the rupee because of the uncertainty and plummeting economic growth while adding that the Indian currency? remains Asia’s worst-performing currency this year.
(By Moign Khawaja with input from Reuters and BBC)