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Re touches a new low, just shy of 60 to dollar
Sanjeev Sharma/TNS

New Delhi, June 20
The rupee sank today to an all-time low of just under 60 to the dollar amid fears that the liquidity tap of the US Federal Reserve will be gradually turned off. The Sensex followed suit plunging 526 points, its biggest fall in nearly two years. The rupee which has been gradually weakening over the past month fell by almost 130 paisa in a single day to touch a new low of 59.95, just short of the 60 mark.

Both the rupee and stock markets were weak as the world went into a tizzy analysing US Federal Reserve chairman Ben Bernanke’s comments indicating slowing down the monetary stimulus that has kept financial markets afloat since the Lehman crash of 2008.

Gold prices also crashed to a two-and-a-half-year low.

The Finance Ministry said it was ready to take steps to curb volatility in the rupee and was watching the situation closely.

Analysts said emerging economic such as India and risky asset classes were bearing the brunt of the fall.

Reena Rohit, chief manager, Angel Commodities Broking, said the panic seen after Bernanke’s announcement yesterday clearly showed that the world financial markets witnessed withdrawal symptoms much ahead of the stimulus pullback process.

The fear of removal of excess liquidity from markets and its impact on the world economy led to sharp selling across risky asset classes immediately after the announcement by the Federal Reserve, she said.

The weakness in the rupee will make things tougher for households as petrol prices have gone up and electronics prices are being hiked.

Industry body Assocham said the middle class had been impacted by inflation particularly in the context of falling rupee and its cascading effect on the prices of petroleum products, edible oil, higher foreign education, electronic items, foreign trips to the extent of 15-20 per cent to manage their household budgets.

The weakness in the rupee has made crude oil, fertilisers and iron ore, which India imports in large quantities, costlier and financing of overseas borrowings by companies dearer. The crude palm oil prices have set the pace for prices of other edible oils. It is imported in large quantities and any rise in its price will add to the inflationary pressure.

Electronic consumer goods such as computers, televisions, mobile phones, etc. with imported components will also become costlier. LG Electronics has already hiked the prices of home appliances such as washing machines and refrigerators by 3-5 per cent.

There are fears that capital inflows to India will be hit as liquidity is withdrawn putting pressure on the currency given the high current account deficit. Dipen Shah, head of Private Client Group Research, Kotak Securities, said fears over earlier-than-expected withdrawal of monetary stimulus by the US Federal Reserve had led to a sharp fall in markets across the world and India was no exception.

That sinking feeling

Rupee falls by almost 130 paisa in a day against dollar

Weakening rupee set to make crude oil, fertilizers, iron ore, electronic consumer goods such as computers, televisions, mobiles, etc. with imported components costlier

Sensex plunges over 526 points, its biggest single-day fall in nearly two years

The steep fall is attributed to US Federal Reserve’s plan to exit monetary stimulus triggering massive offloading of shares by investors