Budget deficit, recovery doubts tell on rupee

Budget deficit, recovery doubts tell on rupee
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First Published: Sat, Jul 11 2009. 01 15 AM IST
Updated: Sat, Jul 11 2009. 02 00 PM IST
Mumbai: The rupee completed its worst week since February as a faltering global economic recovery and a widening budget deficit triggered a slide in local stocks.
The rupee fell to the lowest level on Friday since 15 May after Group of Eight (G-8) leaders said the recovery from the deepest recession since World War II remains too fragile for any reversal of stimulus measures. China’s exports fell for an eighth month in June as overseas demand shrank. The rupee also fell on concerns India’s widening budget deficit will erode investors’ confidence and prompt them to sell their holdings.
“We are anticipating a further flight of capital because the global economy isn’t giving any confidence to investors,” said Jayant Chiney, treasurer at Bank of India. “We see increased risk aversion in the short term and the rupee will bear the consequences.”
The rupee slumped 2.3% this week to 49.01 per dollar. The currency has dropped 2.2% this month making it Asia’s worst performer outside Japan.
Finance minister Pranab Mukherjee had said on 6 July that the budget deficit will widen to 6.8% of GDP in 2009-10, the most since 1994, as public spending is increased to combat an economic slump.
The Sensex fell 9.5% this week, the most since the five-day period ended 24 October.
G-8 leaders pressed for the door to remain open to more stimulus measures as a renewed stock market drop stirred concerns that $2 trillion (Rs97.4 trillion) of funds committed so far haven’t revived global growth. The International Monetary Fund on 8 July forecast the world economy will shrink 1.4% this year.
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First Published: Sat, Jul 11 2009. 01 15 AM IST