The rupee breached the 51 to a US dollar mark on Wednesday, inching towards the all-time low of 52.17 recorded in March 2009, as persistent demand for dollars from foreign institutional investors (FIIs) and oil companies pushed up the the price of the greenback against the domestic currency.
The rupee has depreciated about 11% so far in 2011 and is the fourth-most depreciated currency in the world.
The rupee recovered later and closed the day marginally higher at the 50.7.
A depreciating rupee will add another headache to the government’s macro-economic managers already battling an array of problems ranging from sliding growth to rising inflation.A weak domestic currency affects the current account deficit — the gap between export earnings and import payments. India is a net importer and costlier imports will widen the deficit (see graphic).
All eyes are on the Reserve Bank of India (RBI) on whether it will intervene to prevent the rupee from sliding further, by selling dollars in the market.