The rupee plunged again to a new low of 58.98 against the dollar on Tuesday before recovering to close at 58.39 thanks to the hand of the Reserve Bank of India.
The weak rupee dragged the stock market down 1.5 per cent on Tuesday on heavy selling by funds and retail investors in metal and realty stocks amid weak global cues. The 30-share BSE Sensex was down 297.34 points (1.53 per cent) at 19,143.73 and the 50-share NSE index Nifty was down 91.35 points (1.55 per cent) at 5,786.65.
The rupee has dipped 3 per cent this week because of heavy capital outflows and weak macroeconomic indicators. Experts say the intervention by the RBI today saw state-run banks sell dollars and the Indian currency recovering to close 24 paise lower versus the previous close of 58.15. “The central bank was finally forced to step in. The dollar selling was near enough to help a recovery in the rupee,” said a dealer with a state-run bank.
The recovery of the rupee was also aided by comments from Chief Economic Adviser Raghuram Rajan, who said the Government, the central bank and the securities markets regulator will take “warranted” action to stall any sharp fall in the rupee.
Economic Affairs Secretary Arvind Mayaram observed that though the current account deficit situation is a worry, the recent steps by the RBI to curb gold imports had “started showing results”.
A weaker rupee is expected to curb the demand for gold imports, which make up 11 per cent of the country’s import bill.
“The rupee touched 58.98 owing to the borrowing of a large corporate, debt pullout by foreign institutional investors and shallowness in the market. Temporary weakness in the rupee will continue for the next couple of days,” said N. S. Venkatesh, Treasury Head, IDBI Bank.