The government on Tuesday attributed the sharp fall in rupee against the US dollar to global economic uncertainty and supply-demand mismatch.
“The main reason for depreciation of rupee against the US dollar is uncertain global economic environment, particularly unfolding of eurozone sovereign debt crisis, which has impacted the level of foreign institutional investment flows in the foreign exchange market,” the Finance Minister Mr Pranab Mukherjee said in a written reply to Rajya Sabha.
He further said: “The fluctuation in rupee exchange rate has been due to changing supply-demand balance in the domestic foreign exchange market.”
Mr Mukherjee said in 2011 so far the rupee has depreciated by 14.8 per cent from Rs 44.67 per dollar on January 3 to Rs 52.42 per dollar on November 25.
“The exchange of rate of rupee is basically determined by the demand and supply conditions in the foreign exchange market. The Reserve Bank constantly monitors the developments in the foreign exchange market and intervenes through purchase or sale operations only with objective to curb excessive volatility and to restore orderliness in the market without targeting any specific rate of band,” Mr Mukherjee added.
The rupee touched a historic low of 52.73 this month against the dollar. However, it has recovered since and was up marginally by 2 paise at Rs 51.93/94 per US dollar in late morning trade on Tuesday.
A weaker rupee is a matter of concern for India as it depends on imports for over 70 per cent of its oil and gas requirements and the depreciation of the local currency has made imports more expensive. The depreciation of the rupee comes at a time when headline inflation has remained above the 9 per cent—mark for 11 consecutive months.