Rupee has lost over 20% this year

MUMBAI: The rupee on Tuesday hit a record low of 66.30 before closing at 66.19, down 188 paise from Monday's close of 64.31, over concerns that the food security bill would throw government finances into disarray and fears of a US strike against Syria.
The rupee is emerging as a front-runner in a race to the bottom among emerging market currencies. In both absolute and percentage terms, Tuesday's drop is the highest ever.The rupee has fallen by around 20% since the beginning of the year. The only currency that has done worse is the South African rand which has fallen nearly 23%. Turkey's lira has dropped 14% while Brazil's real has fallen over 17%. The Chinese yuan has been the outlier, having gained nearly 2% in 2013.
Given the uncertainty over the rupee, gold, seen as a safe haven investment, soared to a new high of Rs 32,585/ten grams. Silver also rose to a six-month high to retrace the Rs 56,000-per kg level, owing to heavy speculative offtake.
The same concerns that caused the rupee to fall also dragged the sensex down 590 points to 17,968. Bankers said that with the government living beyond its means, India faced the risk of a downgrade by the rating agencies. This would accelerate the outflow of foreign capital.
The general slowdown in the economy is also impacting the real estate market. Data released by National Housing Bank showed that property prices in 22 of the 26 cities covered, including Mumbai, Delhi, Bangalore and Chennai, have recorded a decline in prices during the quarter ended June as compared to the preceding quarter.

However, finance minister P Chidambaram said that the government would not exceed the fiscal deficit target projected for the year. He also said that the cabinet had approved infrastructure projects amounting to Rs 1,83,000 crore—including power projects.
"While the rising dollar is hurting all emerging markets, a lot of our pain is self-inflicted," said Ashish Vaidya, head of fixed income commodities and currency trading at UBS India. "The current crisis clearly threatens corporate balance sheets which usually have a reasonable line of overseas funding, which is going to take a hit," said Vaidya. He added that while depreciation leads to imported inflation, the food security bill will add to demand-led inflation as it will increase disposable income of the beneficiaries.
"The Food Security Bill was passed yesterday which is expected to add to the fiscal burden. We believe crude oil has emerged as a key risk in the near-term, which is not a good sign for the INR. Thus, on an overall basis, the macroeconomic outlook has weakened and risks have clearly strengthened," said Sanjeev Zarbade, vice president, Kotak Securities.
"On a back-of-envelope calculations, we estimate that the total cost of NFSB in its first full year could be Rs 1,17,000 crore, which amounts to an additional Rs 27,000 crore (0.25% of GDP) over the budgeted amount for FY14," said A Prasanna of ICICI Securities PD. Adding pressure on the rupee was dollar sales by foreign institutional investors who sold over $800 million worth shares since last week.
Despite the steep fall of 23% from April 23—when the rupee was at its strongest this year—the bottom is not yet in sight. The exchange rate in the one-month forward market overseas is 67.5, which gives an idea of market expectations. Dealers say that volumes have almost disappeared with import demand declining sharply. Exporters too are uncertain over the exchange rate at which they can bill customers given the volatility in the forex markets.