The rupee recovered from a fourmonth low on speculation the Reserve Bank of India (RBI) sold US dollars as importers rushed to buy the greenback amid record trade deficit. But the central bank’s ability to defend the rupee’s value in coming months is being questioned due to receding portfolio flows and upcoming corporate loan repayments. Traders and analysts see the rupee touching a record low this year as India remains the only country among the so-called BRIC club with a current account deficit and dependent on portfolio flows to feed its demand. The currency ended at 52.96 to the US dollar after touching a four-month low of 53.02. State-owned refiners rushed to buy dollars for crude import, fearing that the currency could slide further amid exports turning negative for the first time since the credit crisis. India’s vulnerability is exposed as it remains probably the lone country in the region where the currency is depreciating while others attract inflows due to cheap liquidity sloshing around the global financial system as the US Fed and European Central Bank keep interest rates at record low. The Indian currency was the best performer in Asia this calendar due to trading curbs by the central bank and a record foreign inflows in the January-March quarter. But investor excitement is waning amid new retroactive tax proposals and inaction on the economic policy front. In the month of April alone, foreign institutional investors sold net assets worth Rs. 1,657 crore, after they invested Rs. 39,375 crore since January. The currency touched a life’s low of 54.30 per dollar on December 15.
India’s trade deficit touched an all-time high of $185 billion as export growth remained muted while imports soared 32% to $489 billion. India’s trade deficit has been hit by the economic slowdown in the Asian economies, as India’s has become increasingly dependent on them for its exports. Almost 53% of export demand for Indian merchandise comes from Asia, 20% of which is from the Middle East and only 20% from Europe.
India’s trade deficit touched an all-time high of $185 billion as export growth remained muted while imports soared 32% to $489 billion. India’s trade deficit has been hit by the economic slowdown in the Asian economies, as India’s has become increasingly dependent on them for its exports. Almost 53% of export demand for Indian merchandise comes from Asia, 20% of which is from the Middle East and only 20% from Europe.
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