Economists and forex dealers blamed the unprecedented 251-paise fall in Indian rupee to 68-level against dollar today on panic fueled by food security bill, month-end demand for the US currency from importers and fears of oil prices shooting up in case of US action against Syria.
"The Food Security Bill has added a lot of panic into the market. Participants are not confident about how the government is going to meet its deficit targets," said Madan Sabnavis, Chief Economist at Care Ratings.
Markets fear government finances will take a big hit as the food security will require huge subsidy, dealers said.
"There is a shortage of dollar in the market as participants are expecting rupee to fall to 70-72 level. Even the corporates are not willing to sell dollar at these levels. Whatever small supply of dollar is seen today, it is coming from the nationalised banks," Naveen Raghuvanshi, Associate Vice-president at Development Credit Bank said.
The rise in oil prices to over USD 115 per barrel on worries over possible action by the US military on Syria over the alleged use of chemical weapons also led to the rupee's fall, dealers said.
Continuing its fall, the rupee breached the 68 mark and plunged to an intra-day low of 68.75. The local currency later recovered some lost ground and was trading at 67.70 in late afternoon trade. It had closed at 66.24 yesterday.
Concerns over early withdrawal of US Federal Reserves asset purchase programme is weighing on rupee, Sabnavis said.
Besides oil companies, there is a higher demand for dollars from private sector importers and overseas investors, dealers in foreign exchange said.
"There is outflow from foreign institutional investors and they are also hedging their positions," said Agam Gupta, Managing Director and Head of Fixed Income Trading, Standard Chartered Bank.
"The RBI is likely to have intervened at 68.70 level and they are still there in the market," said Gupta from Standard Chartered Bank.
Meanwhile, the BSE benchmark 30-share index Sensex fell by 229.66 points to 17,738.42 in early trades before recovering to end the day in the positive terrain.