Rupee hits life low

Decade's worst single-day fall of 148 paise; bond yields hit five-year high

Continuing its free fall, the rupee hit a record low on Monday of 63.30 to the dollar. before settling at 63.13. This is the decade's worst singleday fall of 148 paise, heightening fears that more capital control steps could be in the offing.

Efforts to prop up the currency, which has tumbled nearly 13 percent against the dollar this year, have thus far come to a naught, making it the worst performer in Asia and sending warning signals that the region's thirdlargest economy is hurtling towards a full-blown crisis.

In a further threat, the RBI effort to shore up the currency by mopping up liquidity from financial markets, is pushing up market interest rates.

Axis Bank on Monday became the latest lender to raise its minimum lending rate by 25 basis points, to 10.25 percent, pushing up the cost of home and auto loans.

While some see the current crisis as a throwback to 1991, when India had to pledge gold to the International Monetary Fund, the World Bank's chief economist on Monday said such comparisons were unwarranted and India need not seek a credit line from the IMF.

Owing to a record-high current account deficit of 4.8 percent of gross domestic product in the last fiscal year, funds are leaving Indian shores in the expectation that US economy is on

the rebound. The bond market has borne the brunt of the outflows, with foreigners taking out around $10 billion since May 22. The declining rupee on Monday resulted in further collateral damage with the benchmark 10-year bond yield surging 35 basis points, to 9.23 percent, a five-year high. "The declining rupee is exacting its toll. Nobody in the market is confident," said Vijay Sharma, executive vice president at PNB Gilts. Shares continued to bleed under intense selling pressure and plunged to multi-month lows on Monday as worries mounted about deteriorating macro-economic concerns on the back of sliding rupee. The Nifty fell nearly 2 percent to its lowest close in 11 months; the Sensex fell 1.6 percent. Heightened selling in equities could exacerbate the rupee's fall, dealers said. Till now, the RBI was selling dollars but on Monday there was no such activity. Experts said that the market is spooked and no one was inclined to sell dollars. In order to arrest the rupee slide, the RBI last week had announced measures such as restriction on Indian firms investing abroad and on outward remittances by resident Indians, triggering talk of return of capital control regime. However, traders seemed unconvinced about the efficacy of steps unveiled last week. Finance Secretary Arvind Mayaram has told a pink paper that the government was not looking right now at taking further steps to tackle the rupee's fall, but wanted to see the impact of its recent measures. Investors are now waiting to see if minutes of the US Federal Reserve's last policy meeting due on Wednesday will provide some clarity on when it might start scaling back the stimulus.