The rupee recovered somewhat on Tuesday after hitting an all-time low of Rs 53.97 against the US dollar on Monday, but talk in the market veered towards the Rs 55 to the dollar figure signalling a strong undercurrent of weakeness.
The Rs 54-mark was breached intra-day. The rupee, which has lost 10% since February, closed at R53.78 to the US dollar, gaining 19 paise, with markets believing the Reserve Bank of India (RBI) intervened to prop up the currency.
The rupee opened lower at Rs 54.05 against the dollar and went to a low of Rs 54.15 to the dollar before pulling back on talk that the RBI had sold dollars.
“Today’s recovery in rupee will prove to be temporary because the weakness is driven by fundamentals,” said Naveen Mathur, associate director, commodities and currencies, Angel Broking. “With a high current account deficit (for India), investors withdrawing money from India and eurozone crisis getting worse, the rupee is expected to weaken further,” he said.
A high fiscal deficit and a record current account deficit on the external account are twin factors dampening the mood for the rupee in world markets, where the mood for risks is low amid a sluggish recovery in the US and a persisting crisis in Europe.
“RBI is seen to be defending the R54-level for rupee but it is likely to see the Rs 55-level primarily because bad news from the eurozone does not seem to be ending in near future,” said Abhishek Goenka, chief executive officer, India Forex Advisors. “We expect Indian currency to be in the range of 52-55 in three- four months,” he said.The RBI has intervened in recent months and adopted unconventional steps to try to control the currency, such as asking exporters to convert half of their foreign exchange holdings into the rupee.