The rupee appears to be fast hurtling towards the 58 to the dollar mark. It closed at a record low of 56 to the dollar on Wednesday, against the previous close of 55.39. In intraday trade, the rupee tested a low of 56.22.

This is the third day on a trot that the currency has slipped to new lows. Overall, the rupee has weakened by 10.41 per cent since the start of this financial year.

A host of factors including a high trade deficit of $185 billion in FY12, slowing economic growth, rising inflation (headline inflation for April hit 7.23 per cent against 6.89 per cent the previous month) are weakening the rupee.

Further, the Euro Zone debt crisis and risk-aversion (flight of investment to safe haven US) are accentuating the bearish sentiment on the Indian unit.

Market players term the Reserve Bank of India's administrative measures to stem the slide in the rupee since the beginning of May as only peripheral. The tide against rupee can be reversed only by the Government by kick-starting reforms to attract foreign capital.

Today's trading saw oil companies account for a chunk of the dollar demand. There was also demand from foreign institutional investors, which are selling their investments in India.

Supply of dollars is limited though. The pull back from the intraday low of 56.22 to 56 happened because of the central bank's intervention (it sold dollars), say dealers.

Mr T. S. Srinivasan, General Manager (Treasury), Indian Overseas Bank, said: “The rupee value is getting readjusted to the fact that the last couple of quarters have seen slowdown in growth and inflation has been on an upward trajectory…... The Government must announce concrete measures to reopen the FDI and FII taps.”

Related Topics