The India Rupee fell to fresh record lows today in spite of panic moves by the Reserve Bank of India.
Rupee 1-Week Chart
Rupee 5-Year Chart
The Rupee is down 5% in a week, 46% in just over two years.
Carry Trade Unwinds
When carry-trade money is pouring in, everything looks fine. Things get messy in a hurry when there is capital flight.
Panic Flip-Flop Moves by India Central Bank
The Financial Times reports India gripped by mood of crisis as rupee falls again
The Indian rupee fell to a new low against the dollar on Wednesday and stocks declined after a central bank promise to inject liquidity into the country’s financial markets provided only temporary relief from a deepening sense of crisis.
Bank shares and bond prices had jumped in the morning after the Reserve Bank of India’s latest intervention, but the euphoria quickly evaporated.
On Tuesday night the RBI announced that it would purchase Rs80bn ($1.2bn) of long-dated government bonds and take other steps to ease pressures on Indian banks, whose valuations have been badly hit by a series of measures introduced to protect the rupee over the past month.
The latest moves partially reversed previous monetary tightening measures and led to accusations from analysts of Indian policy “flip-flops”.
The government and the RBI have issued a series of edicts in recent days designed to reduce the current account deficit and bolster the rupee, including increases in the import duty on gold, the end of duty exemptions for flatscreen televisions brought in by airline passengers and restrictions on outward direct investment by Indian companies and individuals.
Emphasis mine. Amusingly, those capital controls are supposedly not capital controls according to government officials.
For additional comments and “official denials” please see “No Question” of Economic Crisis; Rupee Plunges to Record Low; Gold Coin Imports Banned.
Wanting the Impossible
India is in a world of hurt. It wants to maintain 6% growth, rein in inflation, stop capital flight, and stop the plunge in the Rupee. That combination is impossible.
Mike “Mish” Shedlock