The Indian rupee on Thursday weakened past 69 to a dollar for the first time, slumping to an all-time low amid a spike in crude oil prices, foreign capital outflows and a widening current account deficit.
Last week rating agency Standard & Poor’s cut the country’s credit rating outlook to “negative”.
The Indian currency, which slid 0.7 percent to as much as 69.0925 per dollar in early trade, is one of the worst performers this year among Asian currencies. It has fallen by nearly seven percent so far this year.
The Indian currency had touched its previous record low of 68.8650 per dollar on November 24, 2016.
Asia’s third-largest economy is battling inflation and a widening current account deficit stoked by high oil prices. This in turn is adding to selling pressure on the Indian currency.
Current account deficit is a measurement of a country’s trade where the value of its imports exceeds the value of its exports.
India’s January-March current deficit widened to $13bn from $2.6bn a year earlier.
India imports more than two-thirds of its fuel needs and higher crude prices pose significant risks for the Indian economy.
The Organization of Petroleum Exporting Countries’ (OPEC) agreement to restrict their oil output by 1.8 million barrels of oil per day (bpd) saw crude oil prices rising to $80 per barrel last month for the first time since 2014.
This year has also seen sustained outflow of foreign funds from Indian debt and equity markets.
In 2018, total outflows until now from bonds and shares stood at $6.6bn, according to a Reuters news agency report.
Sanctions and tariffs
Since January, foreign investors have reduced holdings of rupee-denominated government and corporate bonds by $6.1bn, and pulled $785m from equities.
Foreign institutional investors (FIIs) taking money out of India is a big problem, economist Mohan Guruswamy told Al Jazeera.
“Several reasons are contributing to the rupee slide – fear of the US sanctions and tariff wars, the increasing trade gap, and FIIs pulling out owing to demand for dollars,” Guruswamy said.
Concerns have been mounting over the US threats to sanction countries, including India, that do not stop importing oil from Iran by November 4.
India must decrease dependence on Iranian oil imports, US envoy to the United Nations Nikki Haley said in New Delhi on Wednesday after meeting Indian Prime Minister Narendra Modi.
The international oil benchmark Brent surged to $77.33 per barrel on Thursday.
Modi is struggling to jump-start economic growth and jobs ahead of seeking a second term in a general election due by May 2019.
His campaign promises of development and “better days” to come have failed to deliver new jobs. Modi had vowed to create jobs for 10 million youth each year but he has fallen short on his promise.
India’s jobless rate stood at 5.29 percent in May, data compiled by Center for Monitoring Indian Economy showed.
“Economic growth is undoubtedly slowing, investment is on a slide, commercial credit is declining,” said Guruswamy, a former economic adviser to the federal government in the late 1990s.
“The Reserve Bank of India [the country’s central bank] will have to intervene for macro-economic reasons and for political reasons as the opposition is bound to attack the government over the rupee’s record low,” he added.