India Rupee Plunges to Low as Investors Flee
India’s rupee fell to a record, prompting the central bank to say it’s weighing action to stem the decline.
The rupee fell 0.8 percent to 52.54 per dollar as of 12:31 p.m. in Mumbai bringing its decline to 15 percent this year. The BSE India Sensitive Index (SENSEX) of shares tumbled 21 percent in the period as investors sold emerging market assets on concern the U.S. and Europe will struggle to curb deficits.
The rupee’s drop this year, the worst performance among Asia’s 10 most-traded currencies, is raising costs for companies including Hindustan Unilever Ltd. (HUVR) and Maruti Suzuki India Ltd. (MSIL) A further fall will also spur inflation in Asia’s third-largest economy and increase fuel subsidy costs in a nation that imports 80 percent of its fuel. Inflation has held above 9 percent for 11 consecutive months.
“It is now very difficult to look for reversal in rupee depreciation when the Indian economy is struggling with high inflation, low growth,” said J. Moses Harding, executive vice president at IndusInd Bank Ltd. (IIB) in Mumbai. “It is possible that rupee has shifted into a higher base of 51 per dollar with the next objective at 54 to 56 per dollar.”
The currency dropped past the previous low of 52.18, reached on March 3, 2009. It earlier touched 52.73, the weakest level since at least 1973, when data became available.
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Supercomittee Failure Poses Threat to U.S.
The implosion of the congressional supercommittee is likely to delay any major deficit-reduction agreement until after the next presidential election and may pose an immediate threat to the struggling U.S. economy.
The committee’s failure to reach a deal means several tax programs, including a payroll tax holiday, risk expiring at the beginning of next year, weighing on the household spending that accounts for about 70 percent of the world’s largest economy.
The panel’s inability to agree on $1.2 trillion in budget cuts, which drove stocks down yesterday and Treasuries higher, also stoked doubts about U.S. lawmakers’ ability to overcome partisan gridlock and safeguard the nation’s fiscal health.
“They could not agree even on the smaller challenge of $1.2 trillion,” said former White House budget director Alice Rivlin, among a coalition of officials who pushed the panel to “go big” and find $4 trillion in savings, in an e-mail. “I do not see a way to get to the big deal before the election, if then. It is really discouraging!”
Still, Standard & Poor’s reaffirmed it would keep the U.S. credit rating at AA+ after stripping the government of its top AAA grade on Aug. 5. Moody’s Investors Service reaffirmed its AAA rating with a negative outlook. Fitch Ratings noted in a statement that it said in August that a supercommittee failure would probably result in a “negative rating action,” likely a revision of its outlook to negative, and that a review would be concluded by the end of this month.
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Sales of Existing U.S. Homes Unexpectedly Increase: Economy
Sales of previously owned homes in the U.S. unexpectedly rose in October, a sign falling prices may be attracting buyers.
Purchases increased 1.4 percent to a 4.97 million annual rate, the National Association of Realtors said today in Washington. The median forecast of 75 economists surveyed by Bloomberg News was for a 4.8 million rate. The median house price dropped 4.7 percent from a year earlier, and the number of properties for sale was the lowest for any October since 2005.
Borrowing costs near a record low are helping homebuyers take advantage of housing that’s growing more affordable as prices drop. At the same time, the end of a temporary halt on foreclosures may push more properties onto the market, triggering further slides in value that may prevent the industry from recovering for years.
“The housing market is stabilizing, but it has a long road to a full recovery,” said Sal Guatieri, a senior U.S. economist at BMO Capital Markets in Toronto. “There are still a lot of depressed properties in the pipeline that will hit the market, and demand likely needs to strengthen above a 5 million annual rate to absorb the overhang of unsold homes and alleviate the downward pressure on prices.”
Stocks dropped, extending last week’s decline, as U.S. lawmakers failed to agree on budget cuts. The Standard & Poor’s 500 index fell 1.9 percent to close at 1,192.98 in New York. Treasury securities rose, sending the yield on the benchmark 10- year note down to 1.97 percent from 2.01 percent late on Nov. 18.
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No Deficit Deal as Focus Turns to 2012
Lawmakers on a special debt- reduction committee are poised to announce they failed to reach agreement and dissolve congressional gridlock, kicking tax and spending issues into the 2012 election year.
Treasuries rallied while riskier assets declined as the congressional supercommittee’s deadlock spurred demand for safer assets.
Senator Jon Kyl of Arizona, a Republican on the 12-member panel, said on CNBC the Republican and Democratic committee co- chairmen, Representative Jeb Hensarling of Texas and Senator Patty Murray of Washington, would make a formal announcement “toward the end of the day.” They are expected to say the panel can’t agree on deficit reduction of at least $1.2 trillion, triggering across-the-board cuts of the same amount starting in 2013.
“The next election certainly will have a big bearing on the question of what’s the scope and size of the federal government, and do we want to try to tax our way out of this or grow our way out,” Kyl said. There will be efforts to “ameliorate” effects of the cuts over the next year, he said.
Today is the panel’s deadline to receive a Congressional Budget Office analysis of the effects of any proposal on the deficit. The law requires that the estimates be available for 48 hours before the panel votes, and the supercommittee has a Nov. 23 target date for reaching a deal.
