@ 100 will be a harsh check on India’s goals

LONG BEFORE THE first missiles were fired in West Asia, the warning signs of a 2013-style capital exodus were visible in the gap between India’s ambitions and economic resources.

- ANDY MUKHERJEE

Once the Iran war revived the dollar's safe-haven appeal, the bottom gave way under the rupee.Asia’s worst-performing currency over the past year weakened through a key psychological barrier of 95 against the greenback to hit a record intraday low of 95.12 on Monday. The conflict in the Persian Gulf is the trigger for the unusual weakness, but the fragility is domestic.

Traders rightly sensed the Reserve Bank of India’s mandate to cap local banks’ end-of-day currency positions at $100 million as a desperate measure. Announced late last Friday, the restriction was widely expected to knock off one-way bets against the rupee. But it backfired. The market is no longer confident that the RBI will be able to stop the rupee from slipping past 100. After all, when a monetary authority restricts how lenders manage their books, it unwittingly ends up signalling that traditional tools like interest-rate hikes or dollar sales are no longer sufficient.