The run on the rupee

India's currency has hit a new record low against the dollar as the prospect of an end to US money-printing hits emerging markets.

"The rupee is at risk of completely losing its anchor," says Bhanu Baweja of UBS. The Indian currency has slumped to a new record low of 65 rupees to the US dollar. It has lost 20% since early June. The prospect of tighter money in the US has hit emerging markets.

India's economy has also deteriorated. Growth has fallen to 5% and consumer price inflation is 10%. But the main worry for foreign investors is the large current account deficit of 4.8% of GDP. India's deficit with the rest of the world means that it relies on foreign money to fund its economy. Most of this is in the form of so-called hot money'. These are flows that can quickly reverse, such as stock or bond investments, as opposed to foreign direct investment (FDI) money invested in infrastructure or factories, for instance. Hot money can turn tail quickly, removing money from the economy. FDI can't just up sticks and leave.

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