Indian rupee resumes slide as fears grow for slowing economy

Fri Aug 30, 2013 1:56am EDT
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By Subhadip Sircar and Rafael Nam

MUMBAI (Reuters) - The rupee slid back towards a record low on Friday, with investors braced for a statement on the state of economy from Prime Minister Manmohan Singh and the release of data that was expected to show India in the grip of a protracted slowdown.

Weak economic growth, a record high current account deficit and concerns about the government's finances are proving a toxic mix for the rupee, which hit a record low of 68.85 on Wednesday after falling around 20 percent since May.

The Reserve Bank of India had prompted the rupee's largest single-day rally since January 1998 on Thursday by saying it would provide dollars directly to state oil companies to pay for imports, but the recovery proved short-lived.

By late morning, the partially convertible rupee was trading at 67.36 per dollar, down from Thursday's close of 66.55. Having tumbled 10.4 percent against the dollar so far this month, the rupee was set to record its largest monthly depreciation ever, according to Thomson Reuters data.

The fall has been so fast that is now firmly in territory that is uncharted, leaving analysts unsure how far it can go.

Gross domestic product data, due to be released after the markets close, is expected to show the economy grew 4.7 percent in the April-June quarter, marking a third consecutive quarter of sub-5 percent growth.

India suffered decade-low growth of 5 percent in the fiscal year that ended in March, and many analysts surveyed by Reuters during the past week expect this year to be worse.

"The lack of affirmative action by the government on improving the investment cycle in rest of the year risks reviving a downward spiral, which might pave the way for slip below 4 percent mark, as a worst case scenario," said Radhika Rao, an economist at DBS in Singapore, in an email to clients.   Continued...

A shopkeeper writes currency exchange rates on a board inside a currency exchange shop in Kolkata August 29, 2013. REUTERS/Rupak De Chowdhuri