The rupee on Tuesday plunged 90 paise, or1.6%, to close at all-time low of 58.77 against the US dollar on strong dollar buying by banks and importers as forex market reacted nervously ahead of the US Federal Reserve’s decision to continue monetary stimulus.
The rupee had earlier hit its all-time low on June 11, plunging to 58.98 in intra-day trade, but closed up at 58.39.
"All major Asian currencies were seen trading weaker against the US dollar ahead of the FOMC (Federal Open Market Committee) meet which will last for two days," said Abhishek Goenka CEO, India Forex Advisors. "The market participants will be keenly listening to his speech as his comments on quantitative easing (QE) tapering or continuing will be very significant."
If the Fed decides to taper down bond buying policy it could trigger outflow of funds from emerging markets such as India.
Though the rupee is likely to see downward pressure in the near-term, experts believe that it may strengthen in the medium-term.
"The major sources of drag to the currency in recent years — high inflation and rising current account deficit — are dissipating rapidly and will help support the currency," said Taimur Baig, chief economist, Deutsche Bank. "We therefore expect the rupee to rally against the dollar in the second half of 2013."
Experts see rupee trading in the range of 57-59 against the dollar in the coming days.
"The rupee depreciated by a big margin today," said Anindya Banerjee, currency analyst, Kotak Securities.
"It might have become a victim of a carry trade unwind, as a sharp appreciation in the yen and depreciation in the rupee since mid-May, has become a pain trade for FIIs who have invested in Indian debt paper. We could see a range of 57.50 to 59.30 over the near-term."