Economy stares at crisis as suffers worst 1-day fall of 142p

Economy stares at crisis as suffers worst 1-day fall of 142p Growth Slump Likely; Inflation, Rate Hikes Loom TIMES NEWS NETWORK  Mumbai: Policymakers may still be in denial but the Indian economy is clearly staring at a crisis with the rupee on Monday recording its sharpest drop ever in absolute terms to close at 63.13 — 1.42 paise down from its previous close against the dollar.     Economists are now forecasting an exchange rate of 65 in the short-term. The rush of capital out of India, which has triggered the fall, has raised the prospects of inflation, growth falling below 5% and higher interest rates.     The rupee fell nearly 2.25% in a day, making all imports that much more expensive. Along with the rupee, stock prices too crashed on Monday. The BSE sensex fell 291 points to 18,308.     The rupee’s fall was the sharpest among all currencies as rising interest rates in the US pushed up the greenback against all emerging currencies. As a result investment funds from the West are pulling money out of emerging markets and back into US treasuries. Besides the rupee, the Indonesian Rupiah touched a four-year low.      The Reserve Bank of India’s fire-fighting measure of keeping rupee funds in short supply to rein in the dollar have not helped much but have caused immense collateral damage. The yield on 10-year government bonds has risenpast 9%. This has compelled banks to raise interest rates on deposits and loans. Andhra Bank and Axis Bank have raised lending rates while ICICI Bank and Canara Bank have raised deposit rates. Although the end of the US Fed’s monetary stimulus affects emerging markets across the world, India is expected to be the worst hit as it has a large trade deficit, coupled with high inflation and a growth rate that is now expected to slip below 5%.  Ban on duty-free television imports     The government on Monday banned duty-free import of flat screen television by air travellers in a bid to prop up rupee, which declined below the 63 level against US dollar. The government, according to a notification, has decided to “disallow import of flat panel (LCD/LED/Plasma) television as part of free baggage allowance” with effect from August 26. P14  SENSEX DIVES 291 POINTS     Sensex lost another 291 points on Monday, taking the total loss in last two sessions to 1,060 points     Investors were left 3.2 lakh crore poorer with BSE’s market cap now at 59.3 lakh crore     FIIs were net sellers of 680cr on Monday, adding to their 520cr net selling on Friday