The rupee fell further on Wednesday to close at a new all-time low of 52.355 to the dollar despite reported intervention by the Reserve Bank of India (RBI) in the currency market.
The central bank is understood to have sold dollars, causing the Indian currency to remain relatively strong for the better part of the trading session. At one point, the rupee had gained significantly to move up to 51.80 levels.
However, a bout of weakness in the euro, which came of sharply from 1.3450 to 1.3390 against the greenback, resulted in the rupee sliding below Tuesday?s close of 52.322. The selling in the equity markets also pressured the Indian currency as foreign institutional investors (FII), too, are understood to have bought dollars.
While RBI governor Duvvuri Subbarao said he couldn?t confirm whether the central bank had intervened, Union finance minister Pranab Mukherjee said the RBI would do what it takes to ensure that the currency stabilised.
Deputy governor Subir Gokarn said the central bank wanted the rupee to be market-determined. However, currency market experts say the pressure on the rupee is not off yet.
While much of the weakness has been due to the increasing strength of the dollar, which has gained in the wake of the financial problems in the euro zone, economist believe that the country?s worsening macro- economic fundamentals, coupled with smaller foreign inflows into the stock markets, have also contributed to the Indian currency?s weakness.
Since August this year, the rupee has depreciated by some 16%, hitting an intra-day low of 52.73 on Tuesday and has been the worst-performing currency in the region.
On Tuesday, Subbarao observed that the central bank?s policy remained the same, which was to manage volatility in exchange rate and to ensure that exchange-rate volatility did not impair macroeconomic stability.
The governor added that the exchange-rate movement over the last couple of weeks, particularly in the last 3-4 days, was being driven by global dynamics.
?Clearly, to what extent it moves and in which direction will depend on credible resolution of external situation, particularly the sovereign-debt problem in Europe,? Subbarao said.