The world is in the midst of a currency crunch as the US Federal Reserve and the International Monetary Fund cut rates and a weakening pound and euro keep falling.
The US and other major central banks cut interest rates to record lows, with the Fed cut its benchmark overnight lending rate to 2.25 per cent.
The Bank of England cut its key rate by a further 0.75 percentage points to 0.5 per cent, and the Bank of Japan cut its deposit rate to 0,250 yen per dollar.
India’s currency fell to the lowest level since March 1, when the Reserve Bank of India cut the rate to 8 per cent from 9 per cent to help fight inflation and slow the impact of the devaluation.
The currency is down almost 70 per cent against the dollar since the Reserve Board of India started keeping the currency pegged to the greenback on June 16, 2014.
India is in a currency standoff with China, whose central bank last month cut its overnight lending rates for the first time in six months to shore up its economy and support its currency.
The yuan, a local currency of the People’s Republic of China, is down about 1.5 percent against the greenbacks this year, the biggest annual decline since 2009.
The dollar is the biggest foreign currency in India and is often used by exporters of goods, services and materials.
India exports about $300 billion worth of goods and services a year to China, the world’s third-largest economy, according to a Bloomberg survey.
The government said on Wednesday it would reduce the price of sugar from $1 a kg to $1.25 a kg for three months, and it will reduce the import duty on coal from 18 per cent on Thursday to 8.5%.
The Reserve Bank cut its rate by 2.5 percentage points, to 2 per cent after the two-year bond-buying program, the first of its kind in its history, ended.
The Reserve Bank will continue to raise interest rates as needed, the bank said in a statement.
The bank said the cut will help stabilize the currency and encourage the government to continue the fiscal consolidation measures it has undertaken to revive the economy.
“While the market is pricing in lower inflation expectations, the outlook for India remains positive and inflation remains at a low level,” said Ashish Bhattacharya, an economist with Nomura Securities.
The rupee dropped sharply against the yen, hitting its lowest since June 10.
Its close against the euro dropped to 0-1.4 per cent as the dollar strengthened against other major currencies.