AFP, Mumbai :
India’s rupee headed towards a record low against the dollar Thursday, weakened by the government’s shock currency shake-up and a greenback surge on expectations of a rate hike next month.
The rupee weakened to a three-year low of 68.8425 in morning trade, perilously close to the all-time low of 68.8450 recorded in August 2013. It later touched 68.7425.
India’s currency has been under pressure since Prime Minister Narendra Modi announced earlier this month that the two largest denomination notes would be withdrawn from circulation in a bid to tackle corruption and tax evasion.
The shock move to scrap 1,000 and 500 rupee ($15, $7.50) notes left around 85 percent of bills worthless and sparked long queues outside banks as worried consumers tried to exchange their old notes for new ones.
The government has said the move will bring billions of unaccounted money into the formal banking system and ultimately boost the economy but GDP is expected to take a hit in the short term.
India’s economy is highly dependent on cash and consumer spending is likely to take a severe hit as people are left without paper currency for their daily transactions.
The uncertainty caused by the shock decision has also led foreign investors to withdraw huge amounts of capital from the Asia’s third-largest economy and put it elsewhere.
The slide in the rupee has sparked speculation that the Reserve Bank of India, the country’s central bank, may intervene to shore up the currency.
India’s rupee headed towards a record low against the dollar Thursday, weakened by the government’s shock currency shake-up and a greenback surge on expectations of a rate hike next month.
The rupee weakened to a three-year low of 68.8425 in morning trade, perilously close to the all-time low of 68.8450 recorded in August 2013. It later touched 68.7425.
India’s currency has been under pressure since Prime Minister Narendra Modi announced earlier this month that the two largest denomination notes would be withdrawn from circulation in a bid to tackle corruption and tax evasion.
The shock move to scrap 1,000 and 500 rupee ($15, $7.50) notes left around 85 percent of bills worthless and sparked long queues outside banks as worried consumers tried to exchange their old notes for new ones.
The government has said the move will bring billions of unaccounted money into the formal banking system and ultimately boost the economy but GDP is expected to take a hit in the short term.
India’s economy is highly dependent on cash and consumer spending is likely to take a severe hit as people are left without paper currency for their daily transactions.
The uncertainty caused by the shock decision has also led foreign investors to withdraw huge amounts of capital from the Asia’s third-largest economy and put it elsewhere.
The slide in the rupee has sparked speculation that the Reserve Bank of India, the country’s central bank, may intervene to shore up the currency.
