The Reserve Bank of India (RBI) seems to be fighting a losing battle as the rupee plummeted further on Wednesday to hit an all-time low of 64.54 amid heavy demand for the greenback from importers and continuing capital outflow. The Central Bank made a feeble intervention to stem the decline as it sold dollars through public sector banks which saw the
rupee eventually settling at 64.11 , 86 paise below Tuesday's close.
The rupee has now lost a whopping 292 paise, or 4.77 per cent, in value vis-a- vis the dollar over five straight sessions. The free fall of the rupee and the stock market crash reverberated in South Block with Union finance minister P. Chidambaram holding a brainstorming session with top officials and RBI governor-designate Raghuram Rajan to take stock of the situation.
RUPEE HITS NEW LOW vs POUND
- The rupee hit a new intraday low of 101.3 against the British pound on Wednesday and closed below the 100- level for the first time in the history
- After dropping to an all- time intraday low of 101.3 against the pound, the rupee ended the day at about 100.5 in the Interbank Foreign Exchange market
- While rupee had breached 100- level in intraday trade on Tuesday as well, this is the first time that the currency has closed below this milestone
- Rupee had closed the day at 99.04 against the UK currency on Tuesday after hitting the day's low of 100.52
- Losing further ground, the rupee breached the 101 level in the morning as intervention by RBI also failed to yield the desired results
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Chidambaram also met with India's executive directors at the World Bank, the International Monetary Fund (IMF) and the Asian Development Bank amid speculation that the country might approach the IMF for funds to finance the current account deficit (CAD) and arrest the rupee's decline.
Worried over the sharp increase in interest rates in the wake of steps to support the rupee, RBI on Tuesday had announced that it would inject Rs 8,000 crore into the system and ease liquidity constraints for banks. "Despite the slew of measures taken by RBI, the rupee is seen giving a muted reaction and going on with its weak trend," said Abhishek Goenka, founder and chief executive officer, India Forex Advisors.
FROM THE MAGAZINE: Tweak your investment strategy to take in rupee fall With the export earnings falling far short of the import bill, the economy is saddled with a huge CAD that keeps the rupee under pressure as the country is precariously dependent on overseas hot money for its foreign exchange requirement.
On Wednesday, foreign institutional investors pulled out a net $ 214.14 million from equities amid expectations that the US Federal Reserve would start withdrawing its monetary stimulus next month. Traders were looking ahead for clues from Fed minutes to be released later on Wednesday.
Deutsche Bank said in a note that the rupee could slide to 70 in a month or so although some revival is expected by the end of the year. Since mid- July, RBI has taken steps to tighten cash conditions, which have failed to support the rupee but sent bond yields surging posing a fresh threat to an economy that grew at a decadelow of five per cent last fiscal.
Courtesy: Mail Today
<em>Photo: Reuters</em> 
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