Indian Rupee slumped to a new all time low, against the US dollar, as capital flow continued across all Asian developing markets. The Indian rupee fell to an all-time low of 64.15 versus the US dollar during morning trade on Tuesday.
Not only in India, but from South Africa to Indonesia all the developing markets started sliding downhill. Even though Indian exports are record high compared to imports, the cause of the rupee slide is baffling economists. Primarily fear is what driving the markets, as sovereign rating downgrade looms, in India’s worst economic crisis since 1991. There are vital differences between the 1991 crisis and now, as in 1991, there was an external payments crisis when we had less than two weeks’ imports worth of foreign exchange reserves. This time we have $278 billion in reserves, enough for seven months’ imports.
However, the markets have lost faith in the current UPA government, and stalled reforms, problems with FDI, and land acquisition for industries are seen to be the driving factor behind the massive slump in rupee, and declining growth.
On the other hand, India is not the only country facing this snowballing catastrophe. All major Asian economies, and also Brazil and South Africa are facing similar ongoing crisis, with bank debts in China rising, and Indonesian and Malaysian growth stalling. Brazil is having a cash crunch, and South Africa is in a free fall.
“The eye of the storm is directly above emerging markets now, two years after it hovered over Europe and four years after it hit US,” Stephen Jen, co-founder of hedge fund SLJ Macro Partners, London, was quoted as saying. “This could be serious for Asia.”
