Here's a Wall Street Journal story on falling Indian rupee:
For almost a year, India's central bank has spent billions of dollars to support the beleaguered rupee. And yet the currency is Asia's worst-performing against the U.S. dollar over the past year.
The fruitless efforts by the Reserve Bank of India shows how central banks, especially in emerging markets, often are powerless to manage pressures on their currencies if international market forces are ranged against them.
The rupee has been declining partly because of flight of capital from emerging markets, but also because of concerns over India's deteriorating financial health. The country's current-account deficit recently hit its highest level ever, and the federal government's heavy spending has widened its budget deficit.
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Things worsened for the rupee after March, when the Indian government introduced tax rules in the federal budget that could potentially hurt foreign investors. Spooked, foreign funds pulled money out of the economy.
Between April and June, for instance, foreign institutional investors pulled out $350 million from Indian stocks versus net inflows of $1.15 billion in the same period a year earlier.
Meanwhile, the bank came under intense pressure from the government to cut rates. Growth in India fell to 5.3% in the first three months of 2012, its slowest rate in almost a decade.
In April, the central bank cut rates for the first time in three years. But it hasn't followed with additional cuts, citing inflation and currency risks.
In May, the bank stepped up its actions, ordering exporters to convert half their foreign-currency earnings held onshore into rupees within two weeks. The move failed to lift the rupee as exporters were able to keep their earnings overseas.
At other times, the government has raised hopes of enacting strong measures to boost the rupee, or foreign inflows, but failed to deliver.
"There have been a lot of dashed expectations," said Killol Pandya, head of fixed income at Daiwa Asset Management in Mumbai.
India Struggles to Cushion Rupee's Fall - WSJ.com
