Indian rupee shrinks as government struggles to find answers

India's economy has surged this year, but its motto is going in the opposite direction.

The rupee is one of the weakest currencies in the world in 2018, losing more than 13% of its value against the US dollar. It resumed its fall on Monday, dropping near its record low of 72.9 rupees to the dollar, despite efforts by the government this weekend to reverse the trend.

Finance Minister Arun Jaitley said India would cut "non-core imports" and facilitate foreign investors buying rupee bonds issued by Indian companies.. More details on import restrictions would be revealed in the coming days, he added.

Several emerging markets were hit hard this year by global trade tensions and rising US interest rates, which make the dollar more attractive. Argentina and Turkey have taken extraordinary measures to cope with falling currencies.

The Indian economy is doing much better, posting growth of 8.2% in the last quarter.

But the sharp fall of the rupee may fuel inflation as imported goods become more expensive. India is a major energy importer and the weakness of the currency coincided with the rise in world oil prices, worsening the situation.

Analysts say that the government's intervention was ineffective and unnecessary, since the rupee's weakness is largely due to external factors and is not yet a threat to the strong economy.

The measures announced over the weekend were "rather aesthetic," CNN Shilan Shah, an Indian economist at Capital Economics, told CNN. "These are rather adjustments rather than meaningful measures," he added.

Shah is expecting the fall of the rupee to continue in 2019.

"It seems that the government is worried, which essentially encourages speculators and worries investors," said Pronab Sen, Indian director of the International Growth Center and former chief statistician of the country.

The government is not the only one trying to support the currency. The Indian central bank – the Reserve Bank of India – has bought rupees and its foreign currency reserves fell below $ 400 billion for the first time since November 2017.

The central bank has also raised its interest rates twice this year and further rate hikes are likely if the rupee continues to struggle and inflation rises further.

This is where the real risk for growth lies. Even though a lower rupee is helping exporters, Shah says that rising interest rates could begin to dampen the economy.

"If we see very aggressive rate hikes, that will weigh on growth," he said.

CNNMoney (New Delhi) Posted on September 17, 2018: 9h04 ET