Rupee hits life-time low of 59.93; government steps in

The Indian rupee slumped to another record low of 59.93 against the dollar on Thursday, after the US Federal Reserve signalled an end to its monetary stimulus that would help in further strengthening of the greenback.

The partially convertible rupee opened sharply lower and hit the record low of 59.93 in the morning session at the inter-bank foreign exchange market in Mumbai, surpassing the previous record of 58.98 hit June 11.

The rupee closed at 58.71 on Wednesday.

The Indian currency dropped sharply a day after the US Federal Reserve chairman Ben Bernanke signalled that the Fed would start winding down its stimulus spending later this year.

The Fed move is likely to lead to appreciation of the US currency against its major rivals.

The Indian currency recovered in the afternoon after the government said it was ready to take steps to curb volatility.

The value of one dollar was quoted at 59.78 at 1.15 p.m. Indian Standard Time (IST). The rupee touched a high of 59.50 and a low of 59.93 in the intra-day.

Finance Minister P. Chidambaram met top officials to discuss the volatility.

After the meeting, the chief economic advisor in the finance ministry, Raghuram Rajan, said the government was not “short of options” and it would take necessary action to ensure stability in the currency market.

“We are not short of actions or instruments. As and when need arises, we will be alert to development. We do not like volatility and will take actions when necessary,” Rajan told reporters.

However, Rajan said there was no need to be “overtly pessimistic”, as the Indian currency was not in shambles.

Planning Commission Deputy Chairman Montek Singh Ahluwalia said the central bank would take action when needed.

“We are allowing the exchange rate to move with the market. RBI steps in when it thinks necessary,” Ahluwalia said.

Ahluwalia said the Indian rupee has weakened more than the other Asian peers against the dollar largely due to the high current account deficit.

India's currency account deficit touched a record high of 6.7 percent in the quarter ended Dec 31, 2012. High trade deficit is likely to put further pressure on the current account balance.

According to data released by the commerce ministry early this week, India's trade deficit widened to seven month high of $20.14 billion in May due to sluggish exports and higher imports, notably of gold.

Reactions:
* Rupee fall temporary phenomenon; RBI will intervene whenever required: Planning Commission Deputy Chairman Montek Singh Ahluwalia.

Raghuram Rajan

* "We are not short of actions or instruments as and when need arises," Chief Economic Advisor to the Finance Ministry Raghuram Rajan said. "We will be alert to development, we do not like volatility and will take actions when necessary." The rupee, he said, was not in shambles and "we should not be overtly pessimistic". Rajan said the Current Account Deficit (CAD) was "large, but we are on way to tampering it. Gold imports are coming off its peak." CAD in June will be better than in May, he added.

*  "The Finance Ministry, the RBI (Reserve Bank of India) and SEBI (Securities Exchange Board of India) are watching developments closely and would take action, as appropriate. We are not, let me emphasise, we are not short of actions and instruments, if and when the need arises," said Rajan.