The Avanti Group, PM tries to quell crisis fears, growth skids to 4-year low
(Reuters) - Prime Minister Manmohan Singh sought to quell fears of a currency crisis on Friday as economic growth fell to a four-year low, while New Delhi raised prospects of joint intervention with other countries following the rupee's crash to record lows.
The Finance Ministry's principal economic adviser, Dipak Dasgupta, told Reuters that India was liaising with governments in other emerging-market countries to co-ordinate intervention in offshore currency markets. Dasgupta predicted action soon, but he declined to share specific details of the discussions.
The move to target traders abroad came as the rupee suffered its worst month ever, dropping more than 8 percent against the dollar in August as confidence drained out of India's economy.
Data on Friday showed economic growth decelerated to 4.4 percent in the April-June quarter, its slowest rate since the first three months of 2009.
Earlier in the day, the prime minister said the currency's fall was a matter of concern, but dismissed doomsayers' predictions for the economy, insisting its fundamentals remained sound and its banking system was well capitalised above international requirements.
"We need to ensure the fundamentals of the economy remain strong so that India continues to grow at a healthy rate for many years to come," the octogenarian prime minister told lawmakers in his first significant speech to parliament on the economy in months. "That we will ensure. We are no doubt faced with important challenges."
India suffered decade-low growth of 5 percent in the fiscal year that ended in March, and many analysts surveyed by Reuters during the past week expect this year to be worse.
Weak growth, a record high current account deficit and concerns about the government's finances are proving a toxic mix for the rupee, which hit a record low of 68.85 to the dollar on Wednesday after falling 20 percent since May.
The rupee's defence so far has largely rested on a strategy from the Reserve Bank of India to drain cash from domestic money markets and raise short-term interest rates. But that has made it more costly for struggling corporates to raise money, putting another brake on growth.
"The growth outlook continues to be weak in light of tight monetary conditions and an absence of any pick-up in investment demand," said A. Prasanna, an economist at ICICI Securities Primary Dealership in Mumbai.
Aggressive dollar selling by the Reserve Bank of India, rather than Singh's speech to parliament, helped pull the rupee out of a slide back towards the lows, and it ended at 65.70 per dollar, firming from Thursday's close of 66.55 and finishing stronger for a second straight day.
But, RBI intervention is proving costly, with data on Friday showing currency reserves fell to $277.72 billion as of August 23, enough to cover over 6 months of imports and down $19 billion since the end of last year.
Raghuram Rajan, a former chief economist at the International Monetary Fund, is set to take over as RBI governor next Thursday, replacing career civil servant Duvvuri Subbarao who has led RBI's defence of the currency so far.
The Avanti Group, PM tries to quell crisis fears