Fresh concerns over the euro zone and a high dollar demand from domestic oil companies dragged the rupee to 14-week lows on Thursday. There was no support from the Reserve Bank of India (RBI) even as the currency broke the level of 52 against the dollar, traders said.
Having held between 51.80 and 51.90 a dollar for most of the day, the rupee fell past 52 in the last hour of trade. It closed at 52.14 against the dollar, 36 paise or 0.7 per cent down as compared to yesterday’s close. “Dollar supply was limited though there was strong support at 51.90 and the markets were expecting the RBI to step in,” said a foreign exchange dealer. However, some dollar buying by a large public sector bank for a company towards the end of the day triggered stop losses in the market and the rupee suffered, the dealer added.
Also, rumours of a possible downgrade in France's sovereign debt rating led to dollar strengthening, amid risk-aversion.
The fading hopes of further rate cuts by the RBI to boost growth impacted foreign investor sentiment. According to the Bombay Stock Exchange, there were net foreign fund outflows of Rs 102 crore on Thursday. That was despite domestic stock markets ending with around 0.6 per cent in gains on Thursday.
Since Tuesday's monetary policy announcement, there have been more than Rs 220 crore of foreign fund outflows. The Indian currency has lost 1.3 per cent against the dollar in the period.
"Cutting interest rates when the current account deficit is already high can drive imports at a time when the absorption capacity is low. Rupee depreciation can offset any positive impact from lower commodity prices on domestic inflation," said Sonal Varma and Aman Mohunta, economists at Nomura.
To arrest downward movement in the rupee, the RBI had imposed a number of curbs in the foreign exchange market in December 2011 when the currency touched its all-time low of 53.75 a dollar.
