The Indian rupee hit its record lowest of Rs 56.57 against the US dollar on Thursday. Rupee’s previous record low was 56.52 on 31 May this year.
On Wednesday, the US Federal Reserve launched new economic stimulus measures to tackle weak jobs growth, and predicted a slower output expansion amid the continuing debt crisis in Europe, especially in some euro-zone countries.
US Fed revised its previous growth estimates of between 2.4-2.9% and now says the economy will expand only by between 1.9 and 2.4% this year.
It also extended a bond-swapping programme by six months, aimed at pushing down longer-term borrowing costs and stimulating the world’s biggest economy.
Continued negative reports coming from the eurozone also helped boost the greenback, with the latest concerns that Spain’s troubled banks may need a bigger than thought bailout.
Forex players were expecting the Reserve Bank of India (RBI) to intervene in the decline of the rupee. But, the Reserve Bank of India (RBI) disappointed domestic markets by keeping interest rates on hold on Monday, the same day when Fitch Ratings cut the country’s outlook to “negative”, becoming the second credit agency to threaten India’s investment grade rating.
However, analysts say that there is nothing much the RBI can do for India’s inherent “twin deficits”.
“The RBI’s intervention and policies to mitigate the weakness is not the silver bullet to what really is a structural weakness for the currency; i.e. the twin deficits,” Nizam Idris, head of Asian fixed income and currencies at Macquarie Bank, said .