The rupee fell below the 51 per dollar mark on Friday for the first time in nearly 32 months on worries that foreign investors will avoid investing in Indian assets due to deteriorating economic fundamentals.
The rupee ended at 51.3350 per dollar after being as low as 51.4050 and as high as 51.00. It opened at 51.0725 versus the previous close of 50.9050. Its weekly high was 49.92 on November 14. The rupee had shut shop at 50.1150 last week.
The euro gained the most in a week today against the dollar amid speculation that the ECB was buying Italian and Spanish bonds.
The shared currency of the 17-member euro area rallied from a five-week low versus the yen as ECB President Mario Draghi called on politicians to accelerate the implementation of agreed reforms of the region’s rescue fund.
The Dollar Index dropped for a second day.
Traders are betting that swings in the rupee will increase as the nation’s budget and trade deficits widen and government bond yields climb.
The rupee is the worst-performing currency in Asia this quarter. It is down 3.5% since Sept. 30 and is within striking distance of record low of 52.18 struck in March 2009.
The rupee has underperformed all other Asian currencies this year.
The rupee has slumped 14.2% from its highest point in 2011 hit late in July.
The Indian currency is also hit by broad selloff in risky assets as global investors shun emerging market equities and currencies amid mounting fears that European leaders won;t be able to effectively tackle the eurozone debt crisis.
The combination of wild currency swings and growing concerns about the government’s ability to keep its fiscal deficit in check has pushed benchmark 10-year yields to 9%.
The Centre is most likely to miss its goal to reduce the budget deficit to a four-year low of 4.6% of GDP by March as tax revenues moderate in a slowing economy and the Government struggles to sell stakes in state-owned companies in a weak market.
The fiscal deficit in the first six months of the current fiscal year was Rs. 2.92 trillion, or 70.8% of the annual projection, according to the Controller General of Accounts.
India's economic growth fell to 7.7% in the second quarter, the smallest gain since 2009.
Finance Minister Pranab Mukherjee boosted the Government’s annual borrowing plan by 13% to a record Rs. 4.7 trillion in September.
Meanwhile, RBI Deputy Governor Subir Gokarn was quoted as saying that the central bank will
be careful about using foreign exchange reserves aggressively to protect depreciation of the
rupee.
The RBI has maintained in the past that it does not target a specific level for the rupee but will intervene only to curb volatility.
Log on to: www.flame.org.in
Also Log onto Flame Knowledge Centre