The Indian rupee slumped to a record low against the US Dollar on Monday, on the back of strong US jobs data and concerns about India's struggling economy.
The Rupee hit 58 to the Dollar in early morning trade, worse than the previous low of 57.32 hit on June 28 2012.
"This is a freefall," Abhishek Goenka, chief executive of consultancy firm India Forex Advisors, told AFP.
The rupee's fall is the latest blow to the stuttering growth story of India, Asia's third-largest economy, which has been beset by sharply slower growth, worsening public finances and political turmoil.
A scramble by oil and other importers to buy dollars to pay for imports in the US currency also weakened the rupee Monday.
The rupee depreciated seven percent against the dollar in May alone.
Analysts say that while other currencies have been hit by the dollar's increasing strength, the rupee has fared worse due to the country's troubled public finances and string of corruption scandals.
The widening of India's current account deficit -- the broadest trade measure -- to almost five percent of gross domestic product in the last financial year has also weighed on the rupee.
Foreign exchange traders reported no signs of India's central Reserve Bank of India (RBI) intervening in the currency market to support the beleaguered Indian unit.
Analysts say India's central bank cannot intervene heavily to buttress the currency as it must retain enough foreign reserves for imports. Right now, it only has sufficient reserves for seven months of imports -- the lowest cover in 13 years.
New Delhi attempted to ease corporate concerns, saying it will take measures to curb the widening current account deficit as imports outpace exports.
India's chief economic advisor at the finance ministry, Raghuram Rajan, said in televised remarks that "medium-term" steps will be taken to ease rupee volatility.
The weaker currency makes imports costlier, especially of foreign oil on which India heavily relies, and will stoke already high consumer inflation.
With the US economy improving, there is mounting speculation that the US Federal Reserve could "reverse" its monetary stimulus programme sooner than expected which in turn will an exodus of investment funds from emerging countries and back to the US for better returns.
Analysts believe the rupee will fall further with one forecasting the 59-60 level against the greenback by the end of 2013.
Analysts say the currency's slide puts a question mark over whether India's central bank will cut interest rates further at its June 17 meeting to spur India's economy that has been growing at five percent -- its weakest pace in a decade -- as lower rates usually translate into a weaker exchange rate.
The Rupee also weakened against the British Pound to 89.65 on Monday.BLOG COMMENTS POWERED BY DISQUS