The Indian rupee, which has fallen by more than 12 percent this year against the US dollar, is currently the worst performing currency in Asia.

A strong US dollar and high oil prices, coupled with investors dumping emerging markets’ currencies and a record high current account deficit – a measurement of a country’s trade where the value of its imports exceeds the value of its exports – are proving a toxic mix for the rupee.

On Wednesday, it hit a record low of 72.91 against the US dollar.

The slide has pushed up prices of imported items such as petroleum products, commodities, electronics and engineering equipment – and analysts warn the “worst is not yet over”.

“In the medium term, India should brace for more rupee weakness, due to a further pickup of inflation. We expect the rupee to reach a steady rate of somewhere around 75 [against the US dollar],” said Hugo Erken, chief economist at the Dutch multinational RaboBank.

‘Global crisis’

A number of emerging economies – including Turkey and Argentina – have seen the value of their currencies drop against the US dollar in recent months amid rising trade tensions between the United States and China that have rattled international investors.

Mohan Guruswamy, former economic adviser to the Indian government, says the international instability has added to the rupee’s woes.

“The crisis is ongoing. The rupee fall is partly a global crisis as well, all thanks to [US President Donald] Trump and his declaration of a trade war which is adding to the pressure and the uncertainty,” Guruswamy told Al Jazeera.

India’s policymakers have long blamed offshore traders for aggravating falls in the rupee with speculative bets in currency-based contracts traded in financial centres such as Singapore.

“The short term sell-off that we have seen is worrying,” says Erken, citing a combination of factors contributing to it.

“Global tensions over trade, stubbornly high oil price and, of course, country-specific turmoil in Turkey [central bank independency and inflation], Brazil [elections], South Africa [deteriorating institutional quality] and Argentina [low reserves, high inflation, high foreign currency debt],” he says.

Impact of rupee slide

Higher oil prices pose significant risks for the economy of India, which imports more than two-thirds of its fuel needs

Burgeoning oil import bills could put further downward pressure on the rupee and widen the country’s trade deficit – according to official figures, India’s imports last month stood at $45bn while exports were almost $28bn.

“If you have persistent trade imbalances, persistent current account deficit, the rupee would keep on falling. There is a greater demand for dollars as the rupee weakens,” says Guruswamy.

In such a situation, more people tend to sell rupees to buy dollars, or any other foreign currency that they require.

The weaker currency is also sparking foreign sales of bonds and stocks, which in turn is further pressuring the rupee.

“Money is flowing back to America amid a stronger dollar and incentives for people to keep their money in the US,” says Guruswamy.

He adds that the steady slump in the Indian currency has a negative impact on Indian consumers “as petrol and diesel prices are going up” but provides exporters with a “short term” gain “by making them more competitive”.

Checking the fall

The rupee’s defence in recent years has largely rested on a strategy from the central bank, the Reserve Bank of India (RBI), to drain cash from domestic money markets and raise short-term interest rates.

On Tuesday, the central bank sold dollars in the market to stem the rupee’s weakness.

But Guruswamy warns “there’s a limit to how much the central bank can defend” the rupee. “In the past few weeks, they have sold over $20bn. We cannot deplete our foreign reserves.”

According to estimates, India’s foreign reserves currently stand at $400bn, down from a record high of $426bn in April.

On Friday, the rupee strengthened by 50 paisa to 71.68 against the dollar in early trade in the forex market, on the back of a government assurance that all steps would be taken to ensure the domestic currency does not depreciate to “unreasonable levels”.

However, analysts such as Erken, of RaboBank, warn against over-intervention.

“It [the government] has to tread carefully. Large-scale currency interventions have the same effect as raising rates and the RBI certainly would not want to derail the current economic growth momentum,” Erken said.

Silver lining

India’s ruling Bharatiya Janata Party acknowledges that the currency’s fall is a matter of concern, but dismisses doomsayers’ predictions for the economy.

It insists the economic fundamentals remain sound, with some saying the rupee’s depreciation will help make exports more competitive and reduce imports.

“Rupee is not weakening, rather it is the dollar strengthening against all other currencies,” ruling party spokesperson Zafar Islam told Al Jazeera.

“In fact, India is in a much better position than other countries like Turkey and Argentina who have huge external debt and hence much more exposed to currency risk than us,” he adds.

“The fall in the value of the rupee has also helped our exports. This month’s export figures are stronger than expectations.” 

According to the ruling party, the rupee was still performing better than some other currencies and the country had sufficient foreign exchange reserves.

Analysts such as Erken say India is experiencing a “goldilocks moment” which is reasonably low inflation and high growth, clocking an 8.2 percent gross domestic product (GDP) growth in the three months through June.

What lies ahead?

“From a policy perspective, the government has been pushing hard to implement key reforms and shape a more business-friendly environment,” he says.

But others argue policymakers cannot deflect blame for the lack of investment in the economy or policies that have allowed the current account deficit to reach unsustainable levels.

There’s no quick fix to the crisis, warns Guruswamy.

“Trade imbalances have to be dealt with, current account gap has to be bridged. You have to shore up confidence among the investor community. There’s a serious trust deficit in the government. People who are investors, who deal with money, builders of the economy have no trust in the government,” he says.

Global financial firm Nomura warns of further turbulence for the rupee as India gears up for a general election, due by May next year.

“The key risks [to the rupee] stem from the government turning more populist ahead of the 2019 general elections [worsening domestic fundamentals] and a sharper-than-expected domestic growth slowdown [triggering equity outflows],” a company statement released on 10 September said.

For his part, Erken says India should brace itself for the impact of further US punitive measures against China.

“Another spoiler would be further protectionist announcements by the Trump administration. We expect another $200bn of Chinese imports to be levied before the [US] midterm elections,” he says.

“This would fuel anxiety among investors, and we can expect another round of emerging market currency sell-offs.”

US President Donald Trump’s former campaign chairman has agreed to cooperate in the special counsel investigation into possible campaign collusion with Russia.

In a plea deal to avert a second trial on money laundering and illegal lobbying charges, Paul Manafort agreed on Friday to plead guilty to one count of conspiracy against the United States and another count of obstruction of justice.

The charges do not relate to alleged Russian interference in the 2016 presidential election.

Prosecutor Andrew Weissman said in a federal court in Washington, DC that Manafort had struck a “cooperation agreement”, but did not elaborate on the details of the deal.

Information submitted to court by Special Counsel Robert Mueller on Friday indicate seven charges in a previous indictment against Manafort were reduced to two. 

The move comes three weeks after Manafort, 69, was convicted of eight financial crimes in a separate trial in Virginia.

Those were among the first charges stemming from Mueller’s investigation into alleged Russian meddling in the 2016 presidential election.

In the Washtington case, prosecutors were set to lay out in great detail Manafort’s political consulting and lobbying work on behalf of former Ukrainian President Viktor Yanukovych and the pro-Russian Party of Regions.

According to the court filing, the charge of conspiracy against the US includes money laundering, tax fraud, failing to disclose foreign bank accounts, and acting as an unregistered lobbyist for pro-Russian politicians in Ukraine.

The second count, for conspiracy to obstruct justice, concerns attempts to tamper with witnesses related to Manafort’s foreign lobbying.

Later on Friday, the White House said Manafort’s decision to plead guilty to two criminal counts and to cooperate with the special counsel’s probe had “nothing to do” with Trump’s election victory almost two years ago.

“It is totally unrelated,” said Sarah Sanders said, White House spokesperson.

Trump has denied colluding with the Russians and the Russians have denied interfering.

Rudy Giuliani, the former New York City mayor who is now representing Trump in the Russia probe, told Reuters news agency on Friday that a guilty plea to avoid a second trial would not crush Manafort’s chances of receiving an eventual presidential pardon.

“It’s not going to hurt him if he pleads guilty. Usually it helps you get a pardon down the road. It shows you’ve admitted your guilt,” he said before a deal was announced.