Indian rupee hits new record low against dollar

The Indian rupee continued its downward spiral against the US dollar on Thursday, hitting another record low due to concerns over the eurozone debt crisis and weak domestic data. The Indian unit -- Asia's worst performing currency this year -- fell to a low of 54.3 to the dollar, extending a slide that has seen it lose more than 20 percent of its value against the greenback in 2011. India's central bank has said it will act to prevent a downward spiral of the rupee, which has been hit by global financial uncertainty, as investors abandon riskier emerging market currencies for safe havens. The rupee has also come under severe pressure from negative domestic data showing a slowdown in economic growth, a contraction in industrial output, stubborn inflation and rising fiscal and current account deficits. The Reserve Bank of India (RBI) has said it will make a "definitive statement" on the rupee at its mid-quarter monetary policy review on Friday. The rupee's freefall has fired up import costs, posing a fresh challenge to the government in its bid to bring down inflation which is currently running at close to 10 percent. Economists and forex dealers said the sharp depreciation had come as a surprise and was likely to persist as long as Europe failed to resolve its sovereign debt troubles and domestic reforms were not enacted. "It (the rupee's fall) is down to sentiments because the fundamentals (of the Indian economy) haven't changed so drastically," D.K. Joshi, chief economist with Indian ratings firm Crisil, told AFP. "The economy is slowing down but it's not collapsed. If you make a comparison, at 7.0 percent growth it (India) would still be a fast-growing economy," he told AFP. "So, the sharp decline in the rupee is down to global turbulence." Ananth Narayan, the South Asia head of fixed income, currencies and commodities at Standard Chartered Bank in Mumbai, said investors were also worried about India's current account and trade deficits. "India has always had a current account deficit and in the last months the trade deficit has been on the high side," he said. The RBI intervened during the last financial downturn in 2008-9 and analysts expect the same to happen again to prevent any further depreciation in the short-term and to kickstart investment and growth. Investors are also keen to see more domestic reforms, like opening up more sectors of the economy to foreign investment, as well as cutting the current account and trade deficit, they added. "Hopefully the shock which the system has received will push us all into taking these steps to ensure growth," said Narayan. "A crisis in Europe will push everyone to do the right thing and make the course correction."