Speculation on Federal Reserve Outlook Hurts Rupee

According to Bloomberg, last week, the rupee hit an all-time low of 59.98 per dollar in response to concerns that economic improvement in the United States will cause the Federal Reserve to curb monetary stimulus. The currency's fall of 9 percent this quarter is the worst recorded in Asia. The potential for reduced stimulus exposes emerging economies to greater risks of capital outflows. The degree of imbalance in the current account is the biggest risk to India's economy overall, an economy that grew at a decade-low 5% in the period from March 2012 to March 2013. In the last fiscal year, foreign-direct investment fell more than it has in a decade, increasing reliance on stock and bond inflows, leaving India particularly vulnerable to policy changes by the Fed. In order to improve the situation, the government is considering easing restrictions on foreign-direct investment, cutting the budget deficit and easing both caps and levies on purchases of local bonds by foreign investors.