By IANS,
New Delhi: The Indian rupee fell to a record low Wednesday at 53.88 to a dollar on increased demand for the US currency from importers and gloomy outlook for the global economy owing mainly to the debt crisis in eurozone.
This is the third consecutive day which has seen the rupee falling to new lows.
The Indian currency recovered from the low hit in morning trade, but traded below the 53-a dollar level through the day before closing at 53.70 per dollar. The weakness in the equities markets also put pressure on the currency.
Foreign institutional investors, in fact, sold stocks worth $91.66 million Wednesday, according to data available with the Securities and Exchange Board of India (SEBI).
Traders expect rupee to depreciate further to about 54-56 rupees to a dollar in the near term.
A depreciating rupee makes imports costlier, and has a major impact on the country’s oil bill by putting pressure on retailers to hike prices of at least de-regulated fuels like petrol and aviation turbine fuel. This adds to the inflationary pressures.
Finance Minister Pranab Mukherjee said while excessive capital inflows in the aftermath of global economic crisis led to sharp appreciation in the value of Indian currency, the reversal has now caused a sharp depreciation.
“We have witnessed sharp depreciation of the rupee vis-a-vis the US dollar in the last few months,” said Mukherjee at the Delhi Economics Conclave here.
C. Rangarajan, the chairman of the Prime Minister’s Economic Advisory Council and a former RBI governor, said the central bank could intervene to combat fluctuations in the currency if the factors affecting it were from within the country.
“If the behaviour of Indian rupee is because of certain factors which generate in the Indian economy, then we can use the foreign exchange reserves to control the volatility,” Rangarajan said adding that the reasons for the current depreciation were external economic conditions and an increasing capital account deficit.
In the past four months, the rupee has lost more than 19 percent as India’s imports started far outweighing its exports. The current account deficit which is the difference between a country’s imports of goods, services and its exports has widened to over 3 percent of the gross domestic product.
Many of the country’s import-dependent sectors will see costs going up if the rupee doesn’t stabilise in the near future.
But analysts are hoping for some intervention from the central bank like it did in September and October.
The RBI had sold dollars worth $845 million and $943 million in September and October, respectively, to support the currency, according to data available with the central bank.