It seems to be a bad day for the rupee, and we’re talking not just about the Indian currency.
The Indian rupee is indeed once again plumbing the depths and trading at 15.29 to the dirham (5 paisa short of its lifetime low of 15.34) at 9.30am UAE time (5.30am GMT) this morning.
However, most other rupees, the Pakistani, the Sri Lankan and even the Nepalese rupees are trading at or very near their lifetime lows, suggesting that an economic crisis is brewing in the Indian subcontinent.
The Pakistani rupee made its lifetime low of PKR25.32 against Dh1 this morning at 8.30am UAE time (4.30am GMT) while the Sri Lankan rupee, at LKR35.98 against Dh1 at 8.50am UAE time (4.50am GMT) is a whisker short of its lifetime low of LKR36.07 made on April 26, 2012.
Even the thinly traded Nepalese rupee was trading at NPR24.31 at 6.20pm UAE time (2.20pm GMT) yesterday, near its all-time low of NPR24.51 made last Thursday, less than a week ago.
So, what gives?
While the Indian economic woes have been well documented now, and have been a major reason for the currency’s downward drift over the past few weeks, it is also the recent strength in the US dollar that is responsible for most Asian currencies looking south.
While euro zone concerns – particularly about its break-up if Greece exits – have been depressing the euro against the US dollar, a fragile economic recovery in the US is adding to the greenback’s strength, pushing it to a 23-month high against the euro yesterday.
Nevertheless, the Indian Prime Minister has now stepped in to defend his country’s beleaguered currency, citing global economic woes for the Indian rupee’s dismal performance, and arguing that the decline will not last long.
“The sharp fall of [the] rupee is a matter of concern. But I don’t think we are anywhere near the 1991 situation,” Manmohan Singh told reporters in a reference to the humiliating balance of payments crisis that pushed India to the verge of default, and forcing it to pledge its entire gold reserves to England and Switzerland in a bid to raise debt.
“The fall of [the] rupee is taking place against the backdrop of global economic problems and the euro zone debt crisis,” Singh said, ignoring completely India’s swelling fiscal and trade deficits, at 5.8 and 9.9 per cent, respectively, of its GDP, which are like double millstones around its economy’s neck.
But seemingly oblivious to the economic crisis at home, Singh chose to reassure – perhaps in a misplaced gesture – the general public that all was well. “This is a phenomenon which is not going to last very long,” he proclaimed about the rupee’s decline. Let’s mark his words.