India’s Rupee Falls Sharply, Shares Slump 3.5 Percent

@AFP

MUMBAI (AFP) – India’s currency slid sharply Tuesday and the share market crashed nearly 3.5 percent in another major sell-off caused by uncertainty in the Middle East and a new gloomy economic forecast by Goldman Sachs.

The rupee, the worst performing major currency in Asia this year, skidded 3.25 percent to 68.15 to the dollar as shares closed down 651 points or 3.45 percent to 18,234.66 points.

“In India, we have cut our full-year GDP growth forecast to four percent, from six percent,” Goldman Sachs said in a note to clients.

The investment house added that the rupee was likely to reach 72 per dollar in six months’ time, recovering to 70 over a 12-month horizon.

Goldman Sachs said growth could be weaker and the rupee could fall further than its targets “especially if there are pressures on the banking and corporate sectors due to weakness in growth”.

Goldman Sachs joined a series of investment houses from HSBC to Nomura which have cut their growth forecasts for the once-booming Indian economy.

“We saw a temporary recovery in the rupee,” said Param Sarma, chief executive with consultancy firm NSP Forex, referring to a two-day rally late last week.

“But this could not be sustained” amid persistent concerns, Sarma said.

Russian reports of missile launches in the Mediterranean Sea also accelerated the downward trend in mid-afternoon trading.

The stock market plunge was led by banking shares on worries about the effect of corporate bad debts on their balance sheets.

The rupee’s depreciation will pose a major challenge for Raghuram Rajan, the new central bank governor, who takes charge Thursday, replacing outgoing chief Duvvuri Subbarao.

India’s economy grew by just 4.4 percent in the first three months of the fiscal year, the slowest quarterly expansion in over four years.

On Monday, an HSBC survey showed that India’s manufacturing shrank in August for the first time in over four years.

The currency has also been depressed by the record current account deficit — the broadest measure of trade — which has been fuelled by oil imports.

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