Rupee falls below 52 against dollar
The value of
the Indian rupee Monday fell below 52 against the US dollar for
the first time in over two and a half years as demand for the
greenback by importers and investors rose amid a slump in the
New Delhi/Mumbai: The
Indian rupee hit a record low at 52.73 to the US dollar Tuesday
leaving the corporate sector worried and stoking fears of
inflation shooting up further as oil imports become costlier.
The Indian rupee fell to a record low of 52.73 to a dollar in
early trade Tuesday, before closing to 52.21 a dollar.
Finance Minister Pranab Mukherjee, however, said the rupee's fall
was a reflection of international economic uncertainty and added
that an intervention by the Reserve Bank of India (RBI) would not
help much at this stage.
"We expect there will be a self correction in the market,"
Mukherjee told reporters Tuesday.
The Indian currency has weakened now about 16 percent in the last
four months, having touched a high for this year in July.
Importers, especially oil companies, are now jumping in to buy
dollars on fears that the rupee could slide further and make
"There is no fundamental reasoning behind the sharp depreciation
of the rupee. The single most important factor that is causing
this weakening is the global sentiment, the financial turmoil in
Europe and the US," said Arun Singh - Senior Economist, Dun &
Singh said the volatility could continue at least till
December-end as there was no support for the rupee from the
domestic market, which was facing high inflation.
"A moderation in the global economic turmoil could bring back
foreign investors as the growth fundamentals of the Indian economy
The RBI, which usually steps in to curb volatility in the
currency, has not done so yet. Subir Gokarn, deputy governor of
the RBI, said the central bank was weighing its options.
"We don't have a target or a rate in mind, the rupee is moving
according to market dynamics. It's disruptive, there is no
question," said Gokarn.
"There's an impact on companies and it's a problem. But, any
action we take now, if any, has to take into account the fact that
these actions might have consequences further down the road. So,
we've got to balance out actions now with the risks of potential
increases in vulnerability later," he added.
While it has brought cheer to exporters, a weak rupee is a cause
of worry for many corporates who have raised funds from overseas
During 2011 till date, Indian corporates have raised about $30
billion of external commercial borrowing (ECB). That is, about
Rs.150,000 crore," said Jagannadham Thunuguntla, head of research,
SMC Global Securities.
Companies preferred to raise funds through the ECB route as
interest rates were much lower at 5-7 percent, compared to the
12-14 percent that Indian lenders were charging.
"This naturally translates into an increased burden on the Indian
companies in repaying the ECBs. Such additional burden works out
to $5.4 billion. That is, an additional burden of about Rs.27,000
crore," added Thunuguntla.