Indian Rupee vulnerable after hitting record low

Reuters: The rupee fell to an all-time low on Tuesday as oil refiners and other companies scrambled to buy dollars, with the currency looking increasingly vulnerable to a swelling current account deficit and fears over the global economy and euro zone.

Exposure to short-term portfolio flows, a rising oil import bill and worsening government finances have heightened the risk for the rupee, Asia's worst-performing currency this year, and the outlook remains bearish.

The rupee has skidded nearly 17 percent from a 2011 high reached in late July as risk-averse investors flee emerging markets, increasing the difficulties for a government already struggling with high inflation, slowing economic growth and a widening trade gap.

The failure of a U.S. super committee to reach a deal on debt restructuring could trigger another major round of selling of emerging market and risky assets.

At 3:15 p.m. (0940 GMT), the rupee was at 52.45/46 per dollar, after touching an all-time low of 52.73, and 0.6 percent weaker than its previous close of 52.1550/1650.

"At this point in time, the options for the RBI and the government are really limited. The movement in the rupee is dictated more by macro fundamentals rather than speculation," said N. Bhanumurthy, economist with National Institute of Public Finance and Policy in New Delhi.

"I will not be surprised if the rupee breaches the 53 level and stays there for some time. I don't see a pullback till external macro conditions change."

The falling rupee, combined with slowing growth, has added to a sense of urgency for a scandal-tainted government to push reforms to encourage investment.

The government has already raised ownership limits on government and corporate bonds and is considering allowing international retail investors direct access to Indian stocks, which have slumped some 21 percent so far this year.

Foreign funds have sold more than $300 million worth of shares over the last week, reducing the net inflows in 2011 to just under $400 million, sharply below record inflows of more than $29 billion seen in 2010.

"India's external position has become increasingly vulnerable to global risk appetite. Further weakness cannot be ruled out," Royal Bank of Scotland said in a research note.

The rupee is down 14.8 percent on the year, with the closest loser among other Asian units being the Thai baht, which has shed just 3.2 percent, followed by the Malaysian ringgit that is down 3 percent.