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India’s Rupee Tumbles to Six-Year Low in Worst Week Since 1997

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India"s rupee slid to a six-year low, completing its worst week since 1997, as a global stocks rout prompted investors to seek safer bets than emerging markets.


The currency reached a record low of 49.26 per dollar in intraday trading as the Sensitive Index plunged as much as 9.6 percent. More than $8 trillion of market value has been wiped out in stock markets worldwide this month on concern a deepening financial crisis, triggered by home-loan defaults in the U.S., will drive the world"s biggest economies into recession.


``The rupee is among the most vulnerable of Asian currencies to the global financial stress because India has welcomed more external financing than many other countries in the region,"" said Sebastien Barbe, a currency strategist in Hong Kong at Calyon, the investment banking unit of France"s Credit Agricole SA.


The rupee fell 2.94 percent to 48.47 per dollar this week as of the 5 p.m. close in Mumbai. That is the biggest weekly decline since November 1997. The currency rounded off its ninth week of declines, the longest losing streak since December 2005. Barbe said the rupee may sink to 50 by the end of the year.


Funds based abroad sold Indian equities worth a record $10 billion more than they bought this year, data released by the Securities and Exchange Board of India show. Overseas investors bought local shares worth a $17.2 billion in 2007.


The MSCI World Index of shares lost 3.7 percent, extending this week"s drop to 19 percent, the most on record dating back to 1970. Standard & Poor"s 500 Index futures slid 2.7 percent. Europe"s Dow Jones Stoxx 600 Index slumped 6.9 percent, and the MSCI Asia Pacific dropped 6.4 percent.


Central Bank


The rupee pared losses after the central bank announced measures to ease a cash crunch in the local banking system, adding to speculation the monetary authority will buy the local currency. An increase in cash in the banking system allows the central bank to buy rupees without causing a fund shortage.


``The money-market measures announced by the central bank have intensified speculation that authorities will intervene in the currency market to support the exchange rate,"" said Sudarshan Bhatt, chief currency trader at state-owned Corporation Bank in Mumbai.


The Reserve Bank of India made the steepest cut since 2001 in the amount of cash lenders need to set aside as reserves. The bank lowered the cash reserve ratio to 7.5 percent from 9 percent effective Oct. 11. The measure will release 600 billion rupees ($12.2 billion) into the financial system, the bank said in a statement in Mumbai.


Reserves Decline


In addition, the government canceled an auction of 100 billion rupees of bonds scheduled for today to ease pressure on the nation"s cash-strapped banking system.


The Reserve Bank"s foreign-exchange reserves declined by a record $7.9 billion in the week ended Oct. 3, the central bank said today. Reserves fell by more than $32 billion from a record $316.2 billion reached in May, indicating the bank sold dollars.


The rupee also fell after a government report showed industrial production grew at the slowest pace.


Output at factories, utilities and mines rose 1.3 percent in August from a year earlier after a revised 7.4 percent gain in July, the Central Statistical Organization said in New Delhi today. Economists surveyed estimated an increase of 6 percent.

Oct. 10 2008
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