Rupee hits record low

The rupee hit a record low against the dollar on Wednesday as risk aversion in global markets added pressure on a currency already under fire from fiscal and current account deficits that are weighing on growth. Repeated currency intervention by the central bank and a rash of other measures targeting deposits and exporters have failed to stem the slide in the currency, the worst performing emerging Asian currency by far since March. The rupee dropped as low as 54.46 per dollar, breaching its previous record low of 54.30 in December. It was last trading at 54.34/36 compared to a close of 53.79. The Reserve Bank of India (RBI) will continue to face a losing battle in trying to check the rupee's fall, analysts say. The downturn in global markets raises the prospect of capital outflows when India needs inflows to shore up its balance of payments, which slipped into the red in the December quarter for the first time in three years. Stalled policymaking in government ahead of general elections due by 2014 are also playing a key role in undermining confidence in the currency. Frequent currency intervention by the central bank would further sap rupee liquidity from the economy at a time when the country is facing a severe cash crunch in its banking system, analysts said. "Unfortunately for the rupee, this is not a great environment to run a current account deficit and thus be reliant on capital inflows from foreign lenders," said Sean Callow, a senior currency strategist at Westpac Banking Corp in Sydney. "I suspect only radical steps by RBI - or sudden action by foreign central banks and/or G20 - will stop a push through 55 and quite possible higher," he said, referring to the dollar/rupee exchange rate. A Reuters poll on Tuesday showed that analysts expect the rupee to hover near record lows against the dollar for the next month or so and then to start rising against the dollar. The rupee has fallen nearly 10 percent since its 2012 peak in February. A poorly received federal budget for fiscal 2013 unveiled in mid-March eroded confidence in the currency by casting doubt on the government's willingness to implement policy reforms ahead of the general elections. The rupee was further undermined by controversial government proposals for taxes on foreign investment. "It is very hard for the central bank to turn the currency around," said Robert Prior-Wandesforde, an economist for Credit Suisse in Singapore. "Without doubt, the investors are looking for steps from the government in terms of structural reforms, be it in the form of news on goods and services tax or the direct tax code or some measures that might encourage infrastructure investments."