The Indian rupee continued its slide on Wednesday going past 68 per dollar and 104 against Sterling.
The currency's slump was compounded by fears that foreign investors will continue to sell out of a country stiff economic challenges, with BNP Paribas cutting India's GDP growth forecast for 2014 to 3.7% from the previous figure of 5.2%.
Foreign investors sold nearly $1 billion of Indian shares in the eight sessions through Tuesday - a worrisome prospect given stocks had been the country's one sturdy source of capital inflows, although net purchases so far this year still total $12 billion.
The partially convertible rupee hit a record low of 68.75, down 3.7 percent on the day, after posting its biggest daily percentage fall in 18 years on Tuesday.
The need to attract foreign capital is critical for a country whose record high current account deficit is a key reason behind the rupee's slump.
Yet policymakers have consistently struggled to come up with measures that can convince markets they can stabilize the currency and attract funds into the country.
In its latest initiative, the government late on Tuesday proposed setting up a task force to look into currency swap agreements, a measure analysts said could bring some relief if carried out in time by reducing market demand for dollars or other major currencies.
The rupee has now fallen around 19 percent so far this year, by far the biggest decliner among the Asian currencies tracked by Reuters.
The rupee has failed to rebound despite a slew of measures by policymakers, including extraordinary measures by the central bank to drain liquidity unveiled last month and action to curb gold imports and cut on India's oil import bill.
Whether that can be enough remains in doubt given bond yields are surging, threatening to raise borrowing costs across the already slowing economy, while global prices of oil and gold - the country's two biggest imports - have surged this week.
Foreign investors have started to pare down their equity positions, having sold a net $3.5 billion in stocks since the start of July.
In bond markets, foreign investors have sold more heavily, with outflows reaching $4.5 billion so far this year.
Finance Minister P. Chidambaram said on Tuesday the government would need to do more to revive an economy growing at the slowest in a decade and narrow a current account deficit that hit a record high of 4.8 percent of gross domestic product in the year ended in March.
Those comments came after the government approval of infrastructure projects were overtrumped by concerns about the fiscal deficit after India's lower house of parliament this week approved a 1.35 trillion rupees plan to provide cheap gain to the poor.
- Reuters (Edited by Viji Alles)BLOG COMMENTS POWERED BY DISQUS