Rupee hurtles to its lowest

Mumbai, May 14: The Indian rupee plunged against the US dollar to hit an all-time low of 40.77 as nervousness gripped the foreign exchange m...

Mumbai, May 14: The Indian rupee plunged against the US dollar to hit an all-time low of 40.77 as nervousness gripped the foreign exchange market over reports of fresh sanctions being imposed against India. The Reserve Bank of India did not intervene in the market to arrest the currency crash.

The spot rupee, which remained unchanged for two consecutive days after the nuclear tests, fell by 99 paise to reach 40.77 before recovering to 40.55 at the close. 8220;The situation is under control. There is nothing to panic on rupee dipping to 40.55. The six-month forwards breaching the 12 per cent level is also not alarming and it is unlikely to have any impact on the interest rates as there is enough liquidity in the system,8221; RBI sources said.

The stock markets, however, recovered by 115 points as foreign investors started buying Indian stocks riding on the back of a falling rupee. The rupee fall will boost the earnings of FIIs.

At today8217;s closing level, the rupee was ten paise lower than the previousall-time low level of 40.45 recorded on January 15. The Finance Ministry as well as the RBI were expecting the fall of the rupee for quite sometime as the current level of the rupee was not realistic. 8220;The nuclear tests and the subsequent US sanctions merely acted as the trigger. The rupee had to reach the correct level sooner or later,8221; sources said. In fact, the rupee was moving in the 39.70-39.77 level for some time now.

Forex market sources said the RBI might allow further depreciation of the rupee and let it gradually settle around 42 against the dollar which is widely believed to the right level for the Indian currency. Importers are of the view that the rupee will depreciate on account of the sanctions as foreign inflows to India will come down. Importers rushed to cover on fears that tight sanctions will cripple the economy.

Strangely, SBI also changed its role within 24 hours and resorted to both buying and selling of dollars. 8220;There was a virtual scramble for dollars from all quarters,including SBI8217;s dollar buy bids in the morning. But, SBI8217;s modest spot-dollar sales at the fag end of business enabled the rupee. 8220;The scene has just shifted from the stock market to the currency market,8221; Finance Minister Yashwant Sinha said, adding, stock prices had improved after two bad days when the rupee had held steady despite threats of sanctions. The rupee fall is expected to changes the calculations of corporates and banks. Exporters, on the other hand, were jubilant over the development as their export earnings will shoot up.

Sinha discounted all fears of a run on the rupee saying there was absolutely nothing to indicate a loss of confidence among investors about India following the economic sanctions.

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Reacting to suggestions that corporates drove down the rupee against the dollar, Sinha said, quot;The rupee has appreciated at the end of the day which means there is no loss of confidence.quot;