The Indian currency on Friday touched a historic low of 57.32 to a US dollar and posted its worst weekly fall in nine months,hurt by dollar demand from oil firms and gold importers as well the broad risk-off sentiment. Even as the Reserve Bank of India stepped in to prop up the currency and prevent a much sharper fall,the rupee ended at 57.15/16 per dollar,after hitting a record low of 57.32 which is nearly one rupee down from Thursdays closing of 56.30.
Investors fled to the safety of the greenback at the opening of rupee trading,following a rout in US stocks and global commodities overnight in the wake of weak US data and credit rating downgrades of some of the worlds biggest financial institutions by Moodys Investors Service. The rupee has been one of the hardest-hit currencies in Asia,reflecting investor concerns about Indias economy. A chronic current account deficit also makes the rupee particularly sensitive to capital flows,a handicap at a time when the euro zone debt crisis is leading investors to reduce risk.
Anindya Banerjee,Senior Manager,Currency Derivatives Research,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 would keep a close eye on the next weeks EU summit. In case concrete measures are not announced,then it can cause further sell-off in risk assets and rally in the US dollar.
Finance Secretary RS Gujral told reporters in New Delhi. The government (is taking) action in terms of supportive measures for ensuring higher inflows of foreign exchange… the government is conscious of (situation) and is taking appropriate action, he said,adding the exchange rate is market determined.