Opening the day at 44.16/18 from its overnight close at 44.15/16, the rupee tumbled to 44.30/33 in late morning deals. A combination of factors such as hectic month-end considerations, political uncertainties and a surprise sharp dollar rally against major global currencies pulled down the rupees value amidst reduced foreign fund inflows.
Concerns over the outcome of the Lok Sabha polls kept the spot-market nervous with sentiments turning distinctly negative for further sharp declines. The weakness in the rupee is also on account of the fact that the dollar was buoyed overseas by expectations of strong US economic data, fuelling the case for interest rate rises by the Federal Reserve, and by Chinese Premier Wen Jiabaos comments about the need to cool the red-hot economy.
In the forwards, aggressive Reserve Bank of India intervention brought discounts further down leading to an acute shortage of cash-dollars. But steady hedging by importers amid a clouded political outlook was also driving forwards up.
The six-month forward dollar ended at a discount of 0.12 per cent, compared with the previous close of 0.33 per cent. Exporters are also cancelling (forward) contracts booked earlier, putting pressure on the rupee, a dealer indicated.
There are concerns that a slowing of economic reforms due to political instability could spoil foreign investors robust appetite for local assets.
Foreign investments saw a record pace in 2004 on expectations of robust growth and more reforms, with about $4.5 billion invested since the start of the year, compared with nearly $8 billion for all of 2003.