The rupee breached the psychological level of 56 to a dollar on Wednesday amid persistent demand from the importers for the American currency and rising risk aversion trends in the global markets. The rupee has continued to weaken despite attempts from the central bank to arrest its fall.
The partially convertible rupee settled at 56.23/24 per dollar, which marked a record closing low, and was not far the all-time low of 56.40 hit on Thursday.
Besides the widening current account deficit — the gap between export earnings and import payments — a large number of companies that had opted for foreign currency loans stand to suffer, as their costs would head northward with the weakening of the rupee. Though, the RBI raised deposit rates for non-resident Indians and directed exporters to convert half of their foreign currency holdings into rupees to address the situation, the rupee continued to weaken.
“We are keeping an eye on various factors but the weakening of the rupee is primarily due to global factors including the uncertainty in Greece, we should hope for a fast recovery of the world economy,” Dipak Dasgupta, principal economic adviser to the finance ministry told HT. “We have had cycles in the movement of the rupee and this more so, as India is diversified with a more open economy and flexible exchange rate.”
Rajiv Kumar, secretary general, FICCI, said that the “normal” value of the rupee at present is 55-56 to a dollar. “It is the normal value and RBI does not have ammunition to fight the market, it should do whatever it can to stem volatility,” he said. “It is a cause for concern for companies that have taken foreign currency loans as the cost of repayment will increase.”
Kumar added that the domestic interest rates need to be eased so that the companies do not need to opt for foreign loans.