The rupee closed lower at 55.35 against the American currency on heavy demand for dollars from oil importers.
The rupee opened almost steady at 55.24 against the dollar amid slowing growth in Japan and hopes of reforms from Prime Minister Manmohan Singh. It had closed at 55.28 on Friday.
Singh had reassured on Saturday that the Indian economy will grow at 6.5 per cent in the current fiscal.
For India to achieve a better growth rate, certain quick fixes to the economy are a must. For instance, the Government has reassured investors that it will revisit the controversial retrospective tax rules.
Clarity on tax issues will give foreign investors more visibility into their investments. Foreign investors account for bulk of the investments in Indian stock markets.
Other measures like FDI in retail, insurance, aviation and pension can help shore up the rupee.
Crude oil prices have jumped to $114 a barrel. This along with depreciating rupee will make it difficult for oil companies to sell fuel at cheap prices, thereby stoking inflation.
India has been beset with a dual dilemma of tapering growth and steadfast inflation. Industry has been complaining about higher interest rates for a while now. Higher inflation, however, leaves the Reserve Bank of India with little room to cut interest rates.
Call rates higher; G- Secs yield gains
The interbank call rates closed higher at 8.15 per cent from the previous close of 7.90 per cent.
The 8.15 per cent government security, which matures in 2022, opened lower at Rs 99.62 (yield: 8.20 per cent). It had closed at Rs 99.88 (yield: 8.16 per cent) on Friday.