The rupee on Friday closed below the key 57 mark against the US dollar for the first time in a year, falling 22 paise to 57.06, casting a shadow on the economy as imports become costlier, current account deficit woes worsen and inflation risks rise.
The Indian currency, tracking the domestic equity market, may decline further in the coming days, if US non-farm payroll numbers, to be released later in the day, fail to improve. A strong US data will revive fears of the Federal Reserve withdrawing its monetary stimulus, which could push the rupee beyond its all-time low of 57.33 hit on June 22 last year, analysts said.
The Reserve Bank of India (RBI), however, ruled out any immediate intervention in the foreign exchange market.
"In India, the RBI does not target any exchange rate," RBI governor D Subbarao said in Hyderabad. "We intervene in the foreign exchange market only to manage the volatility and disruption in the macro economic situation. The important point is that we have to be internally sure that when we enter the market we are credible because for a central bank, a failed defence of exchange rate can be quite detrimental."
The rupee has fallen 62 paise, or 1.1%, in the last three days.
The rupee, however, is likely to strengthen in the medium-term, experts added.
"The major sources of drag to the currency in recent years - high inflation and high current account deficit - are dissipating rapidly, and will help support the currency," said Taimur Baig, chief economist, Deutsche Bank. "We expect the rupee to rally against the dollar in the second half of 2013."