The Indian rupee hit a 30-month low of 50.17 on Wednesday against the US dollar, adding another headache for the government, which is battling high inflation.
At 50.17 against the dollar, this is the lowest close for the Indian currency since April 28, 2009.
The prognosis isn’t bullish as analysts expect it to fall further as the rupee moves uncomfortably close to its lowest-ever level of 52.17 to a dollar recorded in March 2009.
“The sources of inflation have now switched to non-food; much of it is due to imported global commodity inflation.
Increased cost due to depreciation of the rupee against the dollar is one of the major reasons for inflation,” a finance ministry official said.
Oil companies, which raised petrol prices by Rs1.8 per litre last week, said the hike has been necessitated by rising crude prices and falling value of rupee against the dollar, which have made imports costlier.
Around the same time last year, there was a surge in dollar inflows as foreign institutional investors (FIIs) parked money in Indian equities that fetched greater returns. This pushed up the demand for the rupee as dollars were converted into rupees for investing in Indian bourses.
The reverse phenomenon is occurring as FIIs are cashing out and diving into safer investment bets such as US government bonds. This is making dollars scarce and reducing demand for rupees. Concurrently, the spurt in crude oil prices has pushed up India’s import of crude oil, making the rupee to fall further.
The rupee had been hit by a slowing global economy, breaching the psychological 50 to a dollar mark twice in recent weeks.