The Indian rupee fell to a record low on Friday as measures to curb foreign currency outflows were seen as the latest roll of the dice by policymakers struggling to defend the currency in a slowing economy and a toughening global investment environment.
Far from propping up the currency, the measures from the Reserve Bank of India late on Wednesday to restrict how much its citizens and companies can invest abroad raised fears of outright capital controls that would further undermine the confidence of foreign investors.
Indian policymakers have cobbled together a slew of steps over the past month in a bid to halt the rupee's slide, including the central bank's extraordinary steps on July 15 to drain cash from the system and raise short-term interest rates in an economy already growing at a decade low.
Yet none of the steps unveiled so far have convinced investors that India can attract overseas investments, which is seen as essential in narrowing a record high current account deficit that is the biggest source of the rupee weakness.
The approach is beginning to test the patience of foreign investors, just when emerging markets such as India are already seen as particularly vulnerable ahead of the expected tapering of monetary stimulus by the U.S. Federal Reserve.
"They're coming across as a bit panicky. That's what is damaging sentiment for investors," said Jonathan Schiessl, a fund manager at Ashburton Investments in Jersey, referring to the RBI's actions to defend the rupee.
"Unless things improve, we will probably in all likelihood be withdrawing some weightings from our India positions."
The partially convertible rupee fell to an all-time low of 62.03 to the dollar as trading began. By 0900 GMT, it was trading at 61.88, weaker than its Wednesday's close of 61.43/44. Markets were closed on Thursday for a holiday.
Slip Sliding Away
The central bank's capital outflow restrictions came a day before the dollar spiked after U.S. jobless claims data on Thursday suggested an early end to the Fed's asset purchases.
That prospect looms over India at a time when it is suffering from a current account deficit that hit a record high of 4.8 percent of gross domestic product and an economy growing at a decade low of 5 percent.
Foreign investors have already sold a