Analysis: India inches closer to crisis as rupee retreats
Reuters – 1 hour 42 minutes ago.. .
By Swati Bhat and Emily Kaiser
MUMBAI (Reuters) – India may face its worst financial crisis in decades if it fails to stem a slide in the rupee, leaving the central bank with a difficult choice over how to make best use of its limited reserves to maintain the confidence of foreign investors.
If the central bank is too timid, it risks adding fuel to the ire of portfolio investors, which India relies on heavily to cover its imports tab.
Aggressive intervention would leave the central bank open to criticism that it is wasting precious money on problems that are beyond India’s control anyhow, noteably Europe’s debt crisis.
Unlike most of its Asian peers, India has recently been running large current account and fiscal deficits. That means it must attract sufficient foreign money — namely U.S. dollars — to close the gap, and a weaker home currency makes that costlier.