The Indian rupee registered its biggest fall in almost two years Monday, slumping to below 58 against the dollar for the first time on escalating worries over the country's current account deficit (CAD) and firming of the US currency globally.
The partially convertible rupee tumbled 1.9 percent to 58.16 against a dollar. The rupee hit a record low of 58.17 in the intra-day trade at currency market in Mumbai. The Indian currency had weakened by 22 paise to 57.06 against the dollar Friday.
Worries over the widening CAD and firming of the dollar against major global currencies, including the Euro and the Japanese Yen, have put pressure on the Indian rupee.
Chief economic advisor in the finance ministry Raghuram Rajan said the government was taking medium-term measures to control current account deficit.
Rajan hoped the weakness in the Indian currency would be a temporary phenomenon.
"This could be temporary phenomenon. But again, let me reiterate, government is not supportive of weakening of rupee and we would like more stability," he said.
India's CAD hit a record high of 6.7 percent of gross domestic product (GDP) in the October-December quarter of 2012-13. A weak rupee will make it difficult for the government to finance such high deficit.
Talking to reporters in the national capital, Economic Affairs Secretary Arvind Mayaram said the panic in the market was "unwarranted".
"I think this will settle down in a while. We should not worry but we are watching the situation closely," Mayaram said.
Analysts said the Indian currency would weaken further due to macroeconomic problems.
"Given the current complex macroeconomic happenings, one could take a view on the rupee with a depreciation bias," said Reena Rohit, chief manager for non-agri commodities and currencies, Angel Broking.
"Although it has already weakened considerably, there are expectations of a further weakening trend and a stronger Dollar Index would cause the majority of the weakness," Rohit said.
Federation of Indian Export Organisation (FIEO) president M. Rafeeque Ahmed said although volatility may be good in the short-term, it would impact the long-term interests of Indian exporters.
"Such high volatility creates uncertainty and speculation which hit the economy and business confidence. The depreciating rupee will further widen the current account deficit," Ahmed said.
