Rupee slips as RBI ushers in Rajan as new head
MUMBAI |
(Reuters) - The rupee slid against the dollar on Wednesday, providing
the incoming governor of the Reserve Bank of India (RBI) with a test of
fire as he takes over in the middle of a slump in confidence in the
economy and its currency.
Raghuram Rajan, a suave, unflappable former chief economist at the
International Monetary Fund (IMF), takes over in a public ceremony on
Wednesday.
He enters office as the economy struggles with decade-low growth, a
record current account deficit and a steep fiscal shortfall. The latest
data on the state of the economy is due in coming hours with the release
of the monthly HSBC Markit services purchasing managers' index.
A survey by the same provider this week showed manufacturing activity in August shrank for the first time in four years.
The worries about the sluggish economy, and a lack of confidence in how
policymakers have addressed it so far, have pummelled the rupee.
The Indian unit slid as low as 68.62, not far from a record low of 68.85
hit a week ago, earlier on Wednesday. AT 1107 the rupee was trading at
67.33 per dollar.
"The rupee will be Rajan's first and key challenge. His IMF aura may
help but he will need to win the market's faith by announcing something
which helps bring in dollar inflows," said Vikas Babu Chittiprolu, a
senior foreign exchange dealer at state-run Andhra Bank.
India's economy is reeling mainly from a dearth of investment and a slowdown in manufacturing activity and consumer demand.
Several banks, including Goldman Sachs this week, have cut their GDP
growth forecasts to well below the decade low of 5 percent for the year
ended in March.
Traders say the economy is being further hit by the extraordinary
measures from the RBI under outgoing Governor Duvvuri Subbarao, which
chose to drain cash and raise short-term interest rates in a bid to
defend the rupee.
The big question is whether Rajan, who most recently was an advisor at
the Finance Ministry, will take the helm of the RBI with a whisper or a
bang, and whether he will dismantle any of the mishmash of current
central bank measures.
Investors are showing little faith the government can push through
substantial reforms, such as a hike in subsidised fuel prices, which
could help revive confidence in the economy.
Singh, in a statement ahead of a trip to Russia to attend the Group of
20 nations' summit on Thursday and Friday, said India would also need a
more stable global environment.
"The Summit comes at a time when we in India have introduced several
reform measures and taken steps to strengthen macro-economic stability,
stabilise the rupee and create a more investor friendly environment,"
Singh said.
"At the same time, a stable and supportive external economic environment is also required to revive economic growth.
Global markets are weakening after leaders of a U.S. Senate panel said
they reached an agreement on Tuesday on a draft authorisation for the
use of military force in Syria, paving the way for a vote by the
committee on Wednesday.
Worryingly for India, global crude and gold prices are surging. Oil and
gold are the country's two biggest imports, and are a big factor behind
the wide current account deficit that is putting pressure on the rupee.
The prospect that the Federal Reserve will unveil a plan after its
policy meeting on Sept 17-18 to start winding down its monetary stimulus
is also weighing on emerging markets, but India has fared worse than
most because of the lack of confidence it can address its precarious
deficits.
(Additional reporting by Subhadip Sircar in MUMBAI; Editing by Neil F
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