NRI alert: Indian rupee plunges to record low of Rs16.66 vs Dh1; Rs61.21 vs $1

The battered Indian rupee got a fresh hammering on Friday, slumping to Rs16.666 against the UAE dirham (Rs61.21 against the US dollar) at 7.10pm UAE time (15:10 GMT), plunging below its previous historic low that it made 10 days ago, on June 26, 2013. Sustained dollar demand by importers, especially oil importers, has maintained an constant pressure on the rupee, pushing it down to unprecedented levels. India's central bank Reserve Bank of India (RBI) reportedly started selling dollars this afternoon from its foreign exchange reserves, to defend the currency after it slipped below the level of Rs60.59, according to market players. However, the RBI does not have an exchange rate target, its governor said, suggesting it might not be able to defend further falls in the weakening rupee. Friday’s plunge followed the US Labour Department’s announcement that that country’s economy added more-than-expected 195,000 jobs in the month of June. This confirmed the market’s belief that the US economy is getting back on track, which would suggest that the US Federal Reserve will have reason to go through with its plan to taper off the $85-billion-a-month quantitative easing programme, which is a positive for the US dollar. The US dollar, and dollar-denominated currencies such as the UAE dirham, rose immediately in the global forex market, especially against emerging market currencies such as the Indian rupee. Positive month-on-month performance by the US economy increases the likelihood the US Fed beginning the QE3’s pullback as early as September 2013.   Along with job creation, the Fed is said to be watching unemployment levels, which remained at 7.6 per cent for June, unchanged from May. The Indian rupee previously hit a historic low of 60.76 against the dollar on June 26, and again today, as overseas funds pull out of emerging markets and domestic economic woes mount. The RBI 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 media in southern Chennai on Thursday, according to a statement. The Indian currency, which has fallen more than 10 per cent 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. On Friday, the rupee was quoted at 60.32 to the dollar. 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 had 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. Emirates247