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Indian Central Bank Steps In As Rupee (USD/INR) Hits Record Low

Published: 20 Jun at 4 PM Tags: Dollar, America, USA, India,

Global markets were existing in a state of suspended animation prior to Federal Reserve Chairman Ben Bernanke’s fiscal policy speech.

After he announced that the Fed would be tapering quantitative easing in line with US economic growth, with a view to bringing it to an end completely by mid 2014, the currency market went haywire.

Emerging market currencies, like the Rupee, were among the most significantly affected.

In the immediate aftermath of the Fed’s announcement the Rupee plunged to a historic low against the US Dollar.

The Rupee shed 1.9 per cent – its biggest decline since 2011 – and fell to 59.85 against its broadly strengthening American counterpart.

The drop was so significant that the Indian central bank stepped in to lend the currency some much needed support.

According to independent sources the Reserve Bank of India may have sold Dollars in order to prevent the Rupee from falling below 60 per Dollar.

Meanwhile, the finance ministry’s chief economic advisor Raghuram Rajan today asserted that the government is prepared to take action in order to limit volatility in the currency.

As one locally-based industry expert commented: ‘There will be pain due to the current-account deficit and as leveraged investors are pulling money from Indian debt. Policy makers will now have to put their heads together to think about more structural, long-term fixes.’

Speculation regarding the supposed intervention of the Reserve Bank of India helped the Rupee to trim losses.

According to another source: ‘The Rupee’s weakness has reduced the scope for interest-rate cuts in the near term. That is driving yields higher.’

The Rupee was trading in the region of 59.5700 against the US Dollar following the release of US data, including jobless claims and existing home sales.

The various reports showed that initial jobless claims in the US climbed by more than estimated last week, but that sales of existing homes in May exceeded forecasts while Philadelphia Fed region factories expanded at the most rapid pace for two years in June.
As of Thursday, 20th June 2013, the Pound Sterling currency rates mentioned within this news item were as follows:

GBP USD exchange rate was 1.5516, and GBP INR exchange rate was 92.1617.
Laura Parsons About Author: (360 Posts)Laura works in the financial sector as a currency analyst, studying the latest global economic developments and assessing their impact on the foreign exchange market. Laura uses her currency knowledge to write articles focussing on market movements and trends for several independent financial websites.

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