Rupee hits new low of 60 as US set to end stimulus

The rupee plummeted to a new all-time low of Rs60 a dollar this morning, though it subsequently trimmed some of its early to quote at 59.53 a dollar. This was still 83 per cent lower than the previous day's close.

Finance minister P Chidambaram held a meeting with his top civil servants on Thursday to discuss the falling rupee.

The plunge came a day after the US Federal Reserve indicated a tapering of its monetary stimulus, and data showed China's factory activity weakened to a nine-month low in June. There was also a strong demand for the American currency from banks and importers amidst a sharp fall in equity market.

Stocks fell across Asia after Federal Reserve chairman Ben Bernanke said after a two-day policy meeting that the central bank may reduce bond purchases later this year should the US economy strengthen.

Planning Commission deputy chairman Montek Singh Ahluwalia reiterated that the rupee fall is not an India-specific problem as all emerging market with high current account deficits have witnessed currency weakness.

He also said that if required the Reserve Bank of India (RBI) will intervene, but the government will not fix the exchange rate as rupee volatility has been caused due to instability in global markets. He also maintained that the government places highest importance on taming inflation as of now.

He also expressed surprise at the market's reaction to the US Fed chief Bernanke's comments.

The chief economic adviser to the finance ministry Raghuram Rajan said, ''We are not short of actions or instruments as and when the need arises. We will be alert to the development; we do not like volatility and take actions when necessary.''

Rajan said rupee is not in a shambles and cautioned against being over-pessimistic. He said the finance ministry, the RBI and the Securities & Exchange Board of India (SEBI) are watching the financial markets.

''Don't think the rupee is in shambles. Over time flows will favour India. The need is to focus on the medium term,'' he said.

According to him, a 10 per cent depreciation in the rupee leads to 1 per cent inflation.

Seeking to soothe investor concerns, Rajan said India's current account deficit (CAD) will get better in June and that there is no requirement for a knee-jerk reaction on gold imports.

''The CAD is large, but we are on way to tampering it. Gold imports are coming off its peak,'' he said.

Rajan also pointed out that quantitative easing is easier to get into than get out of. He believes that the US Fed may actually delay tapering off of its bond-buying programme as several economists believe that the US economic recovery may take more time.

Meanwhile, it is believed that the RBI sold dollars through state-run banks to prop up the rupee.