India’s rupee tumbled to a new record low against the dollar on Thursday as uncertainty about the future of the US stimulus program added to growing fears about the state of the Indian economy.
Closely watched minutes from the U.S. Federal Reserve were unable to shed any light on when the bank will begin winding down its bond-buying scheme, which has helped fuel an investment splurge in Asia’s emerging markets.
The rupee sank to 65.04 against the dollar in early trade despite suspected interventions by the Reserve Bank of India (RBI) to try to halt the slide this week.
The unit is the worst performing currency among key Asian nations this year, losing about a fifth of its value.
The RBI and the government have been in crisis management mode for several months to try to stabilize the rupee by announcing measure such as a tightening of liquidity in the markets and hiking short-term interest rates.
But the measures have failed to halt the plummet and this week the bank changed tack, announcing it would inject 80 billion rupees ($1.26bn) into the banking system, by buying back long-term government bonds.
The move aimed at making more credit available to boost slowing economic growth raised concern in the markets about a lack of clear policy direction and prompted accusations of policy flip flop.
Expectations of an end to the stimulus have seen Western investors in recent months repatriate some of the vast sums that poured into emerging economies when it was unveiled last year, in turn hitting currencies and equities.
But India has been especially hard hit because of concerns about its large current account deficit and a possible balance of payments crisis.
Minutes from the Fed’s July policy meeting released Wednesday showed board members had differing opinions on when to wind down the $85bn a month bond-buying. Some back a “taper” as soon as next month, while others said the bank needed to see more evidence the US economy was strong enough.
Dealers said they feared the rupee could weaken further -- with the 70 level not ruled out -- on concerns over the US stimulus and worries that India’s central bank measures would not provide enough support.