54, 55, 56... is the Re in a freefall? | business | Hindustan Times
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54, 55, 56... is the Re in a freefall?

business Updated: May 24, 2012 01:50 IST
HT Correspondent
HT Correspondent
Hindustantimes.com
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Falling for the sixth straight day, the rupee plunged to a new low of 56.20 against the dollar on Wednesday on the back of strong demand for the American currency from importers, before recovering slightly to close at 56.00.

A weakened rupee also softened sentiments in stock market as the 30-share Bombay Stock Exchange (BSE) sensitive index, Sensex, ended below the 16,000 level for the first time in more than four months. It ended Wednesday at 15,948, down 78 points or 0.5%. The 50-scrip National Stock Exchange index Nifty dropped 25 points, or 0.5% to 4,836.

The rupee fell 61 paise on Wednesday against the US dollar despite what appeared to be a mild intervention by the Reserve Bank of India (RBI). http://www.hindustantimes.com/Images/Popup/2012/5/24_05-biz-01.jpg

Analysts expect the Indian currency to see new lows in coming days.

“I do not see clear skies for India at the moment,” said Pranay Gupta, Asia chief investment officer at Lombard Odier, which manages 145 billion Swiss francs for its clients. “The rupee still has some more downside.”

The Indian currency has fallen around 13% since February on concerns over the high fiscal deficit, lack of policy actions from Indian government and concerns around the euro zone crisis.

“RBI is not intervening aggressively because the regulator knows the depreciation is because of factors that are out of its control,” said Anindya Banerjee, currency analyst at Kotak Securities. “Weakening sentiments among importers is leading to strong demand for dollars.” He expects the rupee to trade in the range of 55-57 against the dollar in the next couple of weeks.

However, some factors such as cooling commodity prices and falling gold imports may come to the rescue of the falling rupee.

“Commodity prices have fallen, including crude oil prices, while gold import is also expected to come down,” said Rajeev Mahrotri, head of trading, global markets group, IndusInd Bank. “Though the rupee may weaken further, we may see falling commodity prices helping it.”