The rupee on Wednesday plunged against the dollar to a historic low of 54.56 before recovering slightly to 54.50 amid big concerns over the eurozone. In Parliament,the government announced that it would resort to unpopular austerity measures to deal with fiscal problems,but insisted there is no need to press the panic button.
A nervous Dalal Street followed the currency,with the Sensex plunging to an intra-day low of under 16,000. The index closed at 16,030.09 points,298.16 points down.
The rupees fall came as global concern mounted over the increasing possibility of debt-stricken Greece exiting the euro,bolstering demand for dollars and curbing bids for emerging-market assets. With the global risk aversion adding pressure on a currency already under fire from the countrys current account and fiscal deficits,the rupee opened sharply lower at 54.06,and fell below the previous all-time low of 54.30,recorded on December 15,2011.
RBI Deputy Governor KC Chakrabarty said in Mumbai that the monetary authority wasnt looking to protect any rupee level,but only to arrest volatility. We dont intervene to arrest the rupees fall,we intervene only to arrest the volatility,you must understand the difference, he said.
A finance ministry official said,The rupee is falling due to global factors. There is no need to panic. The fall might continue till there is a certainty about the eurozone recovery. The RBI is keeping a watch on it.
Dealers said the RBI intervened at various levels in the market today but its efforts proved futile.
Eurozone worries continued to impact global equities. A possible exit of Greece is resulting in rise in risk aversion. Capital is moving from risk assets to safe assets like the US dollar,thereby resulting in the dollar rallying against global currencies. India has its own set of issues including a decelerating economic growth and stubbornly high inflation, said Sanjeev Zarbade,vice-president,Kotak Securities.
The rupee has been on the downslide since last August when the dollar became the most sought-after currency. Since then,it lost nearly 24 per cent. On December 15,it hit the previous lifetime low of 54.30 in intraday trade. Since January,the local unit has regained some lost ground,appreciating nearly 10 per cent due to a rise in capital flows.
However,in April,it resumed its downward spiral on the back of a record high current account deficit of 4.3 per cent during the quarter ended December and a high fiscal deficit,which touched 5.9 per cent against a projected 4.1 per cent in FY12. The steep plunge has forced RBI to take a host of steps to stem the fall,including intervening in the market by selling dollars from its $ 294-billion reserves,hiking the ceiling on FCNR deposits and asking exporters to sell their dollar holdings.
Finance Minister Pranab Mukherjee told Rajya Sabha that the government needed to deal with the difficult situation in the wake of rising prices of crude oil in the international market,and said efforts would be made to push growth. While replying to a debate on the Finance Bill,he said,This is a difficult world,international situation is difficult. Country after country is facing major economic crisis.