The rupee closed at 50 per dollar for the first time on Wednesday as selling of stocks by foreign institutional investors continued amid worsening global economic conditions.
The abnormal fall in the value of the rupee has raised the cost of imports, while increasing earnings on exports. The depreciation of the rupee, which fell by 21 per cent in 2008, has also partly offset the fall in crude oil prices. At $54.07 per barrel, crude prices are down 60 per cent from their record $147.27 of July 11, 2008.
Jamal Mecklai, CEO of Mecklai Financial and Commercial Services, a leading foreign exchange risk management consulting firm, said the movement of the rupee would depend on how economic conditions unfold. “It could fall to Rs 54 or Rs 56 per dollar,” he said.
The 0.7 per cent fall in the rupee followed expectations in the forward contracts traded in the non-deliverable market offshore. Non-deliverable contracts showed an implied rate of Rs 50.83 per dollar against Rs 49.53 per dollar at the end of last week.
Forward agreements involve buying and selling a currency in the future at a price agreed now. Indian rupee forwards traded overseas are non-deliverable, which mean the contracts are settled in dollars.
The International Monetary Fund recently said global economic growth would slow to 2.2 per cent in 2009 from an estimated 3.7 per cent in 2008. The IMF considers economic expansion of 3 per cent or less as “equivalent to a global recession.”