The rupee on Thursday posted its biggest single-day drop in four weeks amid weak domestic equities and volatile euro. The domestic currency declined 1.33%, or 65 paisa, against the greenback to close at 49.80, the lowest level since September 23.
According to forex dealers, the sharp fall in the rupee was on the back of demand for dollars from oil companies. Foreign investors pulling out close to $100 million from the Indian stock markets on Wednesday added further pressure on the rupee.
Mohan Shenoi, treasurer, Kotak Mahindra Bank, said, ?Given India?s current account deficit situation the rupee has to depreciate. Capital flows can help neutralise it. But when capital flows dry out, the rupee depreciation could be sharp. He added that the rupee could fall below 50 levels.
The last time the domestic currency had approached 50 levels, the Reserve Bank of India was suspected to have intervened in the market by selling dollars.
R Gopalan, secretary, department of economic affairs in the finance ministry, said in Singapore on Thursday that the government doesn?t expect the rupee?s depreciation to last long.
The euro on Monday was at $1.3789 at end of rupee trade, down compared with $1.3840 a day earlier. The euro fell to a low of $1.3674 during the day. The dollar index was trading higher at 76.925 points, above 76.705 points on Wednesday.
The euro remained weak on reports that European states are still at odds on the question of leveraging up the European Financial Stability Facility (EFSF). Experts believe the euro and other major currencies will continue to remain volatile till the time there is some clarity on the European debt crisis.