Indian rupee tumbles, prompts central bank intervention

Reserve Bank of India (RBI) building in Mumbai India's rupee fell to near its lifetime low on Friday, prompting the central bank to intervene in currency markets to drag the ailing unit up, dealers said. The rupee hit an intraday low of 60.59 rupees to the US unit -- near its record low of 60.76 hit on June 26 -- as Indian importers bought dollars.
The Indian currency later pared some of its losses, helped by intervention from the central bank, dealers said, to close at 60.22 rupees to the dollar.
"Possibly there was intervention from the Reserve Bank around the 60.58/59 level, which helped the rupee to recover," said Hemal Doshi, a currency strategist at Geojit Comtrade, according to the Press Trust of India.
The central bank does not normally comment on whether it has intervened in the market but dealers reported there were signs of intervention to prop up the rupee.
The reported intervention came a day after the central bank's governor said the Reserve Bank of India did not have an exchange rate target.
The rupee has skidded lower as overseas funds pull out of emerging markets on investor expectations of a scaling down of the hefty US monetary stimulus and as India's domestic economic woes mount.
The Reserve Bank of India is believed to have intervened several times in the market in recent weeks, but governor Duvvuri Subbarao said the priority was managing volatility.
"We employ all instruments available to us to manage volatility, and we do try to manage volatility. But we do not have an exchange rate band," Subbarao told reporters in the southern city of Chennai on Thursday.
The Indian currency, which has fallen more than 10 percent in 2013, is the worst performing currency among major Asian countries.
Analysts believe the central bank lacks the financial firepower needed to manage the rupee and prevent it from falling further.
Its tumble raises import prices of everything from oil and fertilisers to food staples such as pulses, stoking already high consumer inflation and causing hardship for India's poor millions.
Business leaders have been hoping that the RBI would cut interest rates when it meets on July 30 in an effort to spur growth, which is at a decade low of 5.0 percent, but the falling rupee makes this more difficult.
The RBI has lowered rates three times this year.
Source: AFP