The Indian rupee dipped to an all-time low against the US dollar after the Federal Reserve signalled that it could start pulling back on its monetary stimulus later this year.
The rupee fell as low as 59.93, down from its Wednesday close of 58.72. The Fed's program to pump cash into the economy has caused capital to flow into emerging markets. Analysts said the slide signalled India's dependence on those foreign capital inflows.
"It is a classic case of a country's vulnerability to capital flight because of its current account deficit situation," said Stuart Oakley, head of Asian currency trading at Nomura.
India's current account deficit, which is the difference between inflow and outflow of foreign currency, hit a record high of 6.7% of its gross domestic product (GDP) in the October to December quarter.
The deficit occurs when a country's total imports are greater than its exports. A rising deficit impacts the country's foreign exchange reserves as well as the value of its currency.
The rupee has already been under pressure because of the deficit situation and high inflation. It has fallen more than 15% against the US dollar since October last year.
On Thursday, the drop was triggered by comments from US Federal Reserve Chairman Ben Bernanke who said that the US central bank Fed could taper its monthly $85bn (£54bn) bond-buying programme later in 2013.
Mr Bernanke added that the bank might stop the purchases in mid-2014, as long as the economy continues to perform in line with its expectations.
bbc.co.uk
The rupee fell as low as 59.93, down from its Wednesday close of 58.72. The Fed's program to pump cash into the economy has caused capital to flow into emerging markets. Analysts said the slide signalled India's dependence on those foreign capital inflows.
"It is a classic case of a country's vulnerability to capital flight because of its current account deficit situation," said Stuart Oakley, head of Asian currency trading at Nomura.
India's current account deficit, which is the difference between inflow and outflow of foreign currency, hit a record high of 6.7% of its gross domestic product (GDP) in the October to December quarter.
The deficit occurs when a country's total imports are greater than its exports. A rising deficit impacts the country's foreign exchange reserves as well as the value of its currency.
The rupee has already been under pressure because of the deficit situation and high inflation. It has fallen more than 15% against the US dollar since October last year.
On Thursday, the drop was triggered by comments from US Federal Reserve Chairman Ben Bernanke who said that the US central bank Fed could taper its monthly $85bn (£54bn) bond-buying programme later in 2013.
Mr Bernanke added that the bank might stop the purchases in mid-2014, as long as the economy continues to perform in line with its expectations.
bbc.co.uk
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