Govt aims to temper 'panic' over rupee

The Indian rupee has hit record lows for five straight trading days this week.Picture / AP

India's Finance Minister says intense selling pressure on the rupee is exaggerated and that the currency market "panic" is unnecessary.

The rupee, which has hit record lows for five straight trading days, slumped to 65.56 to the US dollar yesterday as uncertainty about the US stimulus programme added to growing fears about the Indian economy.

"The panic that has gripped the currency market is unwarranted," Palaniappan Chidambaram said.

"It is almost universally accepted that the rupee is undervalued and has overshot the reasonable and appropriate level."

The rupee has lost about a fifth of its value this year and there are doubts whether policymakers are in control of the situation.

Global ratings agency Fitch has warned that India, which it rates BBB with a stable outlook, may have its credit ratings lowered if it does not halt the fall in investment.

"Unless reforms related to growth and lowering the current account deficit are addressed, things will not improve," said economist Devendra Pant with India Ratings, part of the Fitch group.

The rupee recovered marginally from its day's low to end trading at 64.55 yesterday, while Indian shares closed up 2.27 per cent or 407.03 points to 18,312.94 points, snapping four straight days of declines.

Chidambaram said there was no plan to resort to capital controls and that reviving growth, which has slumped to a decade low of 5 per cent in the year to March, would remain the focus of the Government.

India's large current account deficit must be funded with foreign capital and the country is seen as one of the most vulnerable among emerging markets.

The Reserve Bank of India and the Government have been trying to stabilise the rupee for months by announcing measures such as hiking short-term interest rates and imposing capital controls.

But the measures have failed to halt the plummet and this week the central bank changed tack, announcing it would inject 80 billion rupees into the banking system by buying back long-term government bonds.

-AFP