Why has the Indian rupee fallen to a record low?
Currency drop stokes concerns the world's fastest-growing major economy could be heading for a slowdown.
India’s currency looks set to resume its downward spiral this week, after the rupee hit a record low against the dollar on Friday, stoking concerns that the world's fastest-growing major economy could be heading for a slowdown.
On Friday, the currency crossed 74 rupees to the US dollar for the first time ever, after the country's central bank surprised markets by holding off on raising interest rates.
The latest drop means the rupee has fallen around 15% against the surging dollar this year alone, “making it one of the world's worst performing currencies” says CNN.
Subscribe to The Week
Escape your echo chamber. Get the facts behind the news, plus analysis from multiple perspectives.
Sign up for The Week's Free Newsletters
From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.
From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.
Efforts to stop the slide, including measures to make it easier for foreign investors to buy rupee bonds by Indian companies and raising tariffs on imported goods to stem the flow of money out of the country, have proven largely unsuccessful.
Even as Indian growth has hit 8.2% this year, a drop of more than 8% on the country’s benchmark Sensex index, combined with rising oil prices, a widening current account deficit at home, and fears of international trade wars have spooked the currency market and added to concern around the economy.
“The coming festive season is unlikely to uplift the mood of the markets, currently buffeted by several headwinds” says Business Today, while “the market consensus seems to be that things could get a lot worse before they start getting better”.
A rate increase on Friday, the third this year, “would have helped curb inflation fuelled by the rupee’s weakness and surging crude prices” says Quartz. Instead, the Reserve Bank of India (RBI) surprised the markets by keeping both the repo and reverse repo rates steady.
“This is a risky move by the RBI since the market was positioned for a rate hike, purely as a rupee defence. In its absence, currency and asset markets could see sharper corrections,” said Abheek Barua, chief economist, HDFC Bank.
CNN reports that “more rate hikes — and more problems for the Indian economy — are likely”.
Some, though, have praised the central bank’s resolve.
Ila Patnaik for Bloomberg says: “A number of factors are pressuring officials to act — not least among them, that the rupee has become both a badge of national pride and a tool of political brinkmanship. But so far the government and the RBI have been unruffled by the fear-mongering. They shouldn’t lose their nerve.”
Sign up for Today's Best Articles in your inbox
A free daily email with the biggest news stories of the day – and the best features from TheWeek.com
-
Today's political cartoons - November 24, 2024
Cartoons Sunday's cartoons - taped bananas, flying monkeys, and more
By The Week US Published
-
The Spanish cop, 20 million euros and 13 tonnes of cocaine
In the Spotlight Óscar Sánchez Gil, Chief Inspector of Spain's Economic and Tax Crimes Unit, has been arrested for drug trafficking
By The Week UK Published
-
5 hilarious cartoons about the rise and fall of Matt Gaetz
Cartoons Artists take on age brackets, backbiting, and more
By The Week US Published
-
Brits keeping 21 million ‘money secrets’ from friends and family, survey reveals
Speed Read Four in ten people admit staying quiet or telling fibs about debts or savings
By Joe Evans Last updated
-
London renters swap cramped flats for space in suburbia
Speed Read New figures show tenants are leaving Britain's cities and looking to upsize
By The Week Staff Published
-
Should the mortgage holiday scheme have been extended?
Speed Read Banks warn that some homeowners may struggle to repay additional debt
By The Week Staff Last updated
-
RBS offers coronavirus mortgage holidays
Speed Read Taxpayer-owned bank follows measures taken in virus-struck Italy
By The Week Staff Last updated
-
What are the changes to National Savings payouts?
Speed Read National Savings & Investments cuts dividends and prizes for bonds
By The Week Staff Published
-
China clears path to new digital currency
Speed Read Unlike other cryptocurrencies, Beijing’s would increase central control of the financial system
By Elliott Goat Last updated
-
Why are donations surging to the RNLI?
Speed Read Charity enjoys flood of funding after criticism for overseas work
By The Week Staff Last updated
-
PPI deadline day: how to claim
Speed Read Final chance for consumers to apply for compensation
By The Week Staff Published