The rupee continued to fall and breached the 57 mark on Friday due to a weak euro, and persistent demand for dollars from oil importers and foreign banks.

The Indian unit closed at a new low of 57.12 to the dollar against the previous close of 56.30.

Negative sentiment saw the rupee open 50 paise lower at 56.80. Intraday, the rupee hit a nadir of 57.31 on Friday.

Forex market dealers expect the rupee to depreciate to the 58 level next week.

“Heavy dollar buying by foreign banks and importers created jitters among traders. The RBI can only smoothen the volatility but cannot stop the fall. The Government needs to get reforms and key policy initiatives going,” said chief dealer of a public sector bank.

The currency recovered after PSU banks sold about $600 million, apparently at the behest of the central bank, he added.

“The RBI has asked oil companies to buy 50 per cent of their dollar requirement from a PSU bank of their choice, and source the balance from the market. However, this may not help. A special window is the need of the hour as oil companies’ dollar requirement is huge,” said another dealer.

Mr Anindya Banerjee, Senior Manager, Currency Derivatives, Kotak Securities, said, “Lack of monetary easing from the US Federal Reserve has triggered a run for the US Dollar and selling in equities and commodities globally.”

Markets will keep a close eye on next week’s European Union summit. The EU summit is expected to discuss measures on combating the debt crisis. If measures are not announced, then it can cause further sell-off in risky assets and rally in the US dollar, he added.

>beena.parmar@thehindu.co.in

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