DUBAI: Concerns mounted over the state of the Indian economy as the countrys currency plummeted to another record low against the dollar and shares continued their slide on Tuesday.
The Indian rupee, Asias worst-performing currency this year slid to 64.13 rupees to the dollar in morning trading, past its previous low of 63.22 on Monday, and some Indian expats are cashing in on the record low the currency has hit by sending more money home.
The Reserve Bank of India is believed to have intervened twice in the foreign exchange market to sell dollars for rupees. The move lifted the Indian unit slightly but it still ended the day at a new lifetime closing low of 63.25 rupees to the dollar.
Troubles besetting the rupee, which has fallen nearly 17 per cent against the dollar this year, has spilt over to the stock and bond markets.
Indian shares which have lost seven per cent in the past three trading days slid as much as 1.83 per cent in early trade to a low of 17,970.98 points before recovering to close down 0.34 per cent at 18,246.04.
The yield on the 10-year benchmark bond hit 9.23 per cent intraday, the highest for over five years, reflecting eroding investor appetite for Indian debt as worries about the economy and potential default mounted, AFP reported.
Finance Minister P. Chidambaram told parliament a number of government steps had been taken to stem the rupees decline including reducing imports of non-essential items such as gold.
The falling rupee stokes inflation by raising the cost of everything India imports from crude oil to chemicals and pulses.
There are also growing fears that India will find it tough to fund its gaping current account deficit, which hit a record high last year.
Indias weak trading sentiment was mirrored across key Asian stock markets, with investors jittery before Wednesdays publication of the minutes of Julys US Federal Open Market Committee meeting.
These were expected to give indications about a possible rollback of the Feds massive stimulus programme.
Most emerging market currencies have been hit by expectations the Fed will scale back its stimulus sooner than expected, causing funds to flow back to the United States as its economy recovers.
This is a crisis, the sentiment is extremely frail, said Param Sarma, chief executive of NSP Forex, a forex consultancy, according to AFP news agency.
In the UAE, many Indian expats view the record decline of their currency as an opportunity to invest and send more cash home.
However Khaleej Times quoting Vasudev, assistant manager of UAE Exchange, Bur Dubai branch, said its been business as usual. Even though we opened at Rs17.3 to the dirham on Tuesday morning, fluctuations in the rupee dont influence people. The people who have to remit do so on a monthly basis end of the month and first week of the month, around the time salaries get credited.
At a branch of Al Fardan Exchange located in a mall, the manager (not authorised to speak to the media), said he had noticed a disturbing trend in the past few weeks of Indians taking personal loans from banks and sending the money home. The managers own belief is: Send what you have, never take a liability, its best to take it slow and send monthly.
Yesterday, a man sent five million in Indian currency home to three different accounts.
There is a huge risk, though, in taking loans and sending that money home. According to K. V. Shamsudheen, who runs a charitable trust and looks into the welfare of NRIs and also conducts classes in Dubai on financial awareness: More than 36 per cent Indians are taking loans from credit card companies that say they are charging 2-3 per cent interest when, in fact, that 2-3 per cent was not annual interest, but monthly.
Shamsudheen advises expats on key matters: Never take loans from individual money lenders. Never take loans from credit card companies. And if you are remitting money home, make sure the investment back home is not in real estate, not in buying houses, but in a liquid investment such as fixed deposit, mutual funds and stocks. Agencies
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