Aug. 20: The rupee today sank below 100 against the British pound — falling by 25 per cent against the UK currency since March even as it tumbled by a relatively modest 13.6 per cent against the US dollar which has been grabbing all the headlines in recent weeks.
The rupee sank to a low of 100.52 against the pound before clawing back some losses to close the day at 99.17.
The currency tumbled below 100 against the pound early in the morning even as it slid below 64 against the dollar.
The precipitate plunge against the two major currencies was triggered by fears that the US Federal Reserve would start tapering its bond purchases. But it was also aggravated by the fact that India’s current account deficit has ballooned in the past year.
The British pound is the most expensive against the Indian rupee at close to 100 among the major currencies in the world. The pecking order is: euro (Rs 84.66), Swiss franc (Rs 69.07), US dollar (Rs 63.25), Canadian dollar (Rs 61.24), Australian dollar (Rs 57.34), New Zealand dollar (Rs 50.46) and Singapore dollar (Rs 49.66).
The slide in the rupee’s value against the pound won’t hurt businesses much as trade is usually transacted in dollars.
Moreover, India’s total trade with the UK amounts to less than 2 per cent of its global trade. The UK’s share of India’s total trade has steadily declined over the past five years. The UK is one of the few countries with which India has a trade surplus.
But it will hugely impact tourists and students travelling to the UK since the conversion from rupees to pound sterling will leave them with that much less to spend.
The rupee and the pound sterling were closely linked till 1966 when India was forced to break the peg to the sterling and opt for the dollar.
In 1947, when India became independent, the rupee was valued at 1 shilling and six pence.
On September 18, 1949, when the pound was devalued because of the rising costs of rebuilding a World War-wrecked economy, the rupee was maintained at a par with the pound.
Until June 6, 1966, a rupee was worth 18 pence, meaning the pound equalled Rs 13.33.
The close link with the pound sterling finally snapped in June 1966 when the rupee was devalued by 57.5 per cent and was quoted at Rs 7.50 versus the US dollar.
Ten years ago, the pound was quoted around 72 against the rupee. Between 2004 and 2008, the pound traded in a range between 72 and 88.5.
After the world financial crisis erupted in 2008, the pound’s value fell against the rupee, plunging to a low of 65.82 on May 17, 2010.
The rally in the pound began around January 2012. It rose sharply from 77.61 versus the rupee in early February 2012 to 88.46 in December. The sustained rally was seen from March this year — an unprecedented 25 per cent surge in such a short period in 10 years.