Mumbai: The benchmark index of the Bombay Stock Exchange, the Sensex, and the rupee fell sharply Friday, following the lead of US markets that closed sharply down Thursday and Asian and European markets that continued to be roiled Friday—a result of the ongoing credit crisis that originated in the US, but had since spread to Europe and Asia.
The Sensex experienced its worst week ever, closing 15.95% down over last Friday’s close.
On Friday, US markets opened sharply down and touched their lowest in five-and-half years. The Dow Jones Industrial Average was trading at 8,264.66, down 3.67% at 8.45pm India time. The index’s early performance, however, is no indication of how it will close—for most part of this week it has lost substantial early gains to end in the red.
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Friday’s sharp fall in the Sensex and the local currency made India the worst performer in Asia for foreign investors thus far in 2008, with aggregate losses on the 30-stock bellwether and the rupee touching 70%.
Both the equity market and the currency would have fared worse if not for the intervention of the banking regulator early Friday to announce a full percentage point cut in banks’ cash reserve ratio (CRR), which defines the amount of cash that commercial banks need to keep with the Reserve Bank of India (RBI), three days after paring it by half a percentage point, to ease the mounting pressure on liquidity.
The combined one-and-a- half a percentage point in CRR, effective on Saturday, will release Rs60,000 crore into the system.
Also See Absolute Closing on Friday (Graphic)
RBI also cancelled two auctions of government bonds worth Rs10,000 crore scheduled for Friday, to prevent draining money from the financial system.
From bad to worse: An online trader in Mumbai reacts after the benchmark Sensex continued to slide. Shashank Parade /PTI
The overnight call money rate that rose to 23% on Friday morning came off its peak after the CRR cut was announced and the yield on the benchmark 10-year paper ended the day at 7.78%, against 8.06% on Wednesday, but bankers and financial sector analysts do not see a lasting solution to the liquidity problem unless the currency market stabilizes. Banks borrow from each other in the overnight market to take care of their temporary asset-liability mismatches.