Indian rupee tumbles to record low amid spillover from 'full-blown crisis' in Turkey


India’s currency hit an all-time low Monday, signalling that fears surrounding a crisis in Turkey could spill over into other markets.

The rupee fell to 70.0850 versus the dollar at 9 a.m. ET. The sharp slide will likely lead the Reserve Bank of India to intervene, sources told CNBC.

Jameel Ahmad, global head of currency strategy and market research at FXTM, said the rupee fell “as a result of the risk off atmosphere across global markets.” A sharp selloff in the Turkish lira last week has raised concerns that a currency crisis in the country, which holds large amounts of foreign debt, could spread to surrounding markets.

“Global markets and news headlines across the world are once again being completely dictated by the ongoing events in Turkey,” Ahmad said. “The Turkish Lira has entered another round of currency freefall, with the ongoing volatility dragging down a wide host of currencies across the world.”

Turkey’s currency plunged more than 18% against the dollar Friday. It continued to slide Monday morning, shedding as much as 9%, with no end to the selloff in sight. It has lost about 40% of its value in August. President Recep Tayyip Erdogan, who has wielded more influence over the central bank this year, doesn’t believe a traditional economic theory that raising interest rates will slowdown inflation.

“The TRY is in a full-blown currency crisis as the number of negative stories increases,” Nordea analysts Morten Lund and Tuuli Koivu wrote in a note.

Concerns about the lira have already hit other emerging market currencies, analysts say, including the South African rand, Russian ruble, and Mexican peso.

Turkey’s main banking regulator will no longer allow foreign exchange operations of financial institutions to exceed 50% of their equity, according to a Sunday announcement on its website. Garanti Bank, one of Turkey’s largest private financial institutions, announced Monday it won’t allow any customers to open any new foreign exchange positions.

Also on Monday, data showed Indian consumer price inflation slowed down more than the consensus had expected. But that was mainly due to a “dramatic drop” in food inflation, according to Capital Economics economist Shilan Shah.

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