Mumbai, May 21: The rupee today fell below the psychological level of 55 to hit a new low of 55.04 against the dollar as the RBI stayed away from the market.
At the Interbank Foreign Exchange market, the domestic currency opened slightly lower at 54.45 a dollar from last weekend's close of 54.43 and immediately touched a high of 54.44. However, it fell sharply at the fag-end of trading, breaching the crucial 55-level, and closed at 55.04, a fall of 61 paise, or 1.12 per cent, from its previous close.
Traders said they saw no major intervention from the central bank on Monday that could have arrested the decline.
The demand for dollars from oil firms and other companies also weighed on the Indian currency, the traders said.
On Sunday, finance minister Pranab Mukherjee had expressed concern over the plight of the rupee, which had been one of the worst performing currencies in Asia. Mukherjee said the government was not sitting idle and was trying to resolve the issue.
RBI deputy governor Subir Gokarn today said the central bank would continue to take steps to stabilise the domestic currency. "There is very strong pressure on the rupee to depreciate... we have done a number of things and will continue to do things that we think have an impact of stabilising the rupee," Gokarn said.
The central bank has maintained that the rupee is suffering on account of global factors and is not the only currency losing to the dollar.
The Reserve Bank today notified restrictions of $100 million on "position limit" for forward contracts by banks. "The position limit for the trading member... bank in the exchanges for trading currency futures and options shall be $100 million or 15 per cent of the outstanding open interest, whichever is lower," the RBI said. It also advised the banks dealing in foreign currency to bring down their trading limits by June-end.
The outlook for the rupee remains very weak. With high current account deficit, poor fund inflows and a slowdown in policy reforms, forex dealers said they expected the rupee to hit 56-57 against the dollar in the next three months.
Traders have suggested a slew of measures that can be taken by the apex bank. One of the options can be the opening of a dollar window for oil companies to sell rupee and buy dollars from the central bank.
The government can also look at issuing sovereign bonds to raise dollars from foreign investors. This option will expose the country to foreign exchange risks during repayment.
Impact on stocks
The weak rupee also cast its shadow on the Sensex, which lost its initial momentum to close with a gain of 31 points.
Earlier in the day, the BSE benchmark went up 145.64 points to the day's high of 16298.39 on positive global cues. Most Asian stocks had risen after reports that the group of eight major countries were keen to keep Greece in the Eurozone.
State Bank of India's strong earnings on Friday also improved the sentiment. SBI shares rose 3.6 per cent, after gaining 5 per cent on Friday, when it reported a net profit of Rs 4,050.27 crore in the fourth quarter ended March 2012 against Rs 20.88 crore in the year-ago period.
However, sentiments turned jittery with the rupee threatening to breach the 55-level, prompting the markets to surrender almost all gains. The Sensex finally closed at 16183.26, a gain of 30.51 points.
The Nifty ended the day 0.3 per cent, or 14.60 points, higher at 4906.05 points.
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