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The rupee recorded its biggest loss this year as domestic stocks retreated and a slump in exports widened the country's trade deficit to a four-month high. The rupee weakened to a one-month low on Monday.
The rupee ended at 62.92 compared with its previous close of 62.37 to a dollar. The rupee had opened at 62.54 and during intra-day trades it touched a low of 62.93. It dropped 0.88 per cent. The rupee had ended at 63.97 a dollar on March 13.
"Rupee dropped due to huge fall in equities. Besides, the trade deficit numbers were elevated and that was negative for the rupee. Going ahead the rupee may recover from current levels," said N S Venkatesh, executive director and head of treasury at IDBI Bank.
The BSE Sensex slipped 1.95 per cent to its lowest close in three weeks while the trade gap reached $11.8 billion in March as overseas shipments dropped 21.1 per cent from a year ago.
According to currency dealers foreign banks were buying dollars due to losses in equities which acted as negative sentiment for the rupee.
However, despite Monday's weakening, the rupee has appreciated by 0.19 per cent since the start of 2015.
Earlier this month, Reserve Bank of India (RBI) Governor Raghuram Rajan said the rupee's relative strength is putting pressure on the margins of some exporters.
Meanwhile, in the recent past, RBI has been building foreign exchange reserves so that when the US Federal Reserve starts raising interest rates, the rupee does not suffer significantly. It is expected that when the US Fed starts raising interest rates, all emerging markets, including India, will see outflows from domestic markets.
The country's foreign exchange reserves stood at $340.41 billion for the week ending April 10. According to currency dealers the central bank continues to mop up dollars through state-run banks in a bid to boost reserves.
On days when there are huge flows by foreign investors in domestic markets, state-run banks buy those dollars.
According to currency dealers the rupee might touch 64 to a dollar sometime this year when the US Fed starts raising interest rates.
