Rupee At Fresh Record Low (USD/INR) While Lira Strengthens (USD/TRY)

Published: 6 Aug at 2 PM Tags: Dollar, Pound Sterling, America, UK, USA, India, Japan, Switzerland, Turkey,

Although the Rupee was able to post a modest advance against the US Dollar at the beginning of the week (as the North American currency softened in response to disappointing employment figures) over the course of trade on Tuesday the Rupee sank to a fresh record low.

India’s asset fell to a historic low of 61.80 against the US Dollar, taking its three-month decline against the ‘Greenback’ to 12.7 per cent.

In response to the currency’s slump industry expert Pramit Brahmbhat commented: ‘Investors’ negative sentiment has thrown the Rupee into the deep valley. It is expected to trade near 62.00 levels in the coming days as India’s record high current account deficit and weak fundamentals will further weaken the Rupee.’

When asked what action India’s central bank could take in order to temper the Rupee’s volatility, a senior economist with Credit Agricole was quoted as saying: ‘I expect direct interventions and further measures which will only work to slow the trend, because reversal requires fundamental reforms that are unlikely to happen.’

Since the US Federal Reserve first hinted of a potential tapering of its stimulus methods, emerging market currencies have suffered but the Rupee has been leading the pack when it comes to Asian-asset declines against the US Dollar.

The Rupee also weakened against a broadly strengthening Pound after the British currency was supported by unexpectedly strong industrial/manufacturing production data.

With a fluctuating currency, record current account deficit and slowing growth to deal with, whoever takes over as Governor of the Reserve Bank of India is in for a testing time.

Today it was announced that Raghuram Rajan will take the reins when the current Governor’s term ends in September.

Rajan is a top advisor in the Finance Ministry and his appointment prompted this response from economist Rahul Bajoria: ‘The immediate challenge would be to restore credibility in stabilizing the exchange rate and fighting inflation. He brings with him a huge wealth of knowledge and a global experience’.

Although the Rupee pared losses as news of the new RBI Governor broke, its persistent weakness is likely to be a significant cause for concern for some time to come.

Meanwhile, Turkey’s Lira was able to advance on the US Dollar after the nation’s central bank warned of the dangers a weak currency poses to inflation. The comments upped the odds of the central bank introducing more restricted monetary policy conditions.

The central bank asserted that while it foresaw a downward trend for inflation in the coming months, the impact of a struggling Lira was already beginning to have an effect on core inflation indicators.

As analyst Erkin Isik observed, the central bank ‘is unlikely to ease liquidity conditions anytime soon, due to upside risks on inflation expectations and a weak currency.

The Lira is currently trading against the US Dollar in the region of 1.9300, but managed to strengthen to 1.9240 earlier in the session.

Looking ahead to tomorrow, Switzerland’s Franc could fluctuate in reaction to Swiss inflation and consumer confidence figures, while the Bank of England inflation report may inspire Pound volatility.

Japan’s Yen will also remain under pressure ahead of the Bank of Japan’s monetary policy statement/rate decision.
As of Tuesday, 6th August 2013, the Pound Sterling currency rates mentioned within this news item were as follows:

GBP USD exchange rate was 1.5347, GBP INR exchange rate was 93.7884, GBP JPY exchange rate was 149.975, and GBP CHF exchange rate was 1.4208.

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