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Rupee vulnerable after hitting record low - Money Matters - livemint.com
The Indian rupee fell to an all-time low on Tuesday as oil refiners and other companies scrambled to buy dollars, with the currency looking increasingly vulnerable to a swelling current account deficit and fears over the global economy and euro zone.Exposure to short-term portfolio flows, a rising oil import bill and worsening government finances have heightened the risk for the rupee, Asia's worst-performing currency this year, and the outlook remains bearish.
The rupee has skidded nearly 17% from a 2011 high reached in late July as risk-averse investors flee emerging markets, increasing the difficulties for a government already struggling with high inflation, slowing economic growth and a widening trade gap.
"At this point in time, the options for the RBI and the government are really limited. The movement in the rupee is dictated more by macro fundamentals rather than speculation," said N. Bhanumurthy, economist with National Institute of Public Finance and Policy in New Delhi."I will not be surprised if the rupee breaches the 53 level and stays there for some time. I don't see a pullback till external macro conditions change."
The falling rupee, combined with slowing growth, has added to a sense of urgency for a scandal-tainted government to push reforms to encourage investment.
Foreign funds have sold more than $300 million worth of shares over the last week, reducing the net inflows in 2011 to just under $400 million, sharply below record inflows of more than $29 billion seen in 2010.