Rupee slides against dollar as US fiscal cliff looms

Indian currency slides against greenback on fears of a fall in economic output of the world's largest economy.

Global investors' flight to safety has not just benefited gold prices.

It has also weakened the Indian rupee against the greenback.

Looming fears of a so-called "fiscal cliff" in the United States of automatic spending cuts and tax rises have stoked fears of a sharp decrease in economic output in the world's largest economy.

That has exacerbated a move away from risky assets - including those denominated in high-yielding currencies such as the rupee - and into safer bets such as the US dollar and the yen, says Gaurav Kashyap, the head of the Dubai Gold and Commodities Exchange desk at online trading house Alpari Middle East.

"The data flow out of India has been extremely negative. Growth forecasts have been toned down massively, inflation is on the rise … [all] driving down the performance of the Indian rupee."

The rupee has depreciated 5.6 per cent against the dollar to 54.76 rupees per dollar since the end of September, reversing a bounce in the Indian currency earlier in the year.

Among emerging market currencies, the rupee has been by far the most volatile, analysts from Goldman Sachs wrote last week. "The rupee is under the constant depreciation pressure exerted by high and sticky inflation and a persistent current account deficit," the report said. "The strong [Indian rupee] rally after … reform announcements has triggered a temporary pick-up in capital inflows, but now the risk is disappointment in the implementation phase [and] already large trade deficits continue to grow."

The Indian rupee fell to as low as 55.12 to the dollar yesterday, its lowest in nearly two months.