Worries about the food subsidy bill dragged the Indian rupee to a fresh all-time low of 66.30 to the US dollar today before closing at 66.24 as the market ignored government assurances on keeping the fiscal deficit in check.
The Indian rupee fell amid weak local equities, US dollar demand from importers and banks, outflows and rising oil prices.
At the interbank foreign exchange market, the Indian rupee resumed lower at 65 a dollar from the previous close of 64.30 and remained in negative terrain through the day. It dropped to a record intra-day low of 66.30 before settling a tad better at 66.24, a fall of 194 paise or 3.02 per cent.
The rupee had plunged 148 paise on August 19. The previous lifetime low was 65.56 on August 22.
"The food security bill has raised concerns over the country's fiscal health. Also, Brent oil which rose to $113 a barrel due to geo-political reasons was negative for the rupee," said Mohan Shenoi, treasurer at Kotak Mahindra Bank.
The benchmark S&P BSE Sensex stock index fell 590.05 points, or 3.18 per cent, to 17,968.08.
Finance Minister P Chidambaram today reiterated the rupee is undervalued and would find its appropriate level.
"The rupee has overshot its true level...We have to be patient, be firm, do whatever is required to be done and rupee will find its appropriate level," he said in New Delhi.
Chidambaram further said the fiscal deficit would be contained at 4.8 per cent of GDP even after Food Security Bill subsidies. The food subsidy budgeted this fiscal is Rs 90,000 crore, of which Rs 10,000 crore is towards the Food Bill.
Global rating agency Fitch yesterday warned of a downgrade if the country misses the fiscal deficit target.
The rupee has declined on expectations overseas investors will pull out of India as the US economy recovers and the Federal Reserve eases its stimulus programme.
Investors are also concerned about the current account deficit. After Chidambaram met overseas investors in Mumbai