At 52.2 to the dollar, on April 20, the
rupee has lost 6.75 per cent from its 48.679 mark on February 6 - the strongest level it achieved since a lifetime low of 54.236 on December 15 last year.
Last year, the rupee's downward spiral was arrested by policy and market actions by Reserve Bank of India (RBI).
On the policy front, in end-November last year, RBI had announced measures to
increase foreign capital flows into the country which included a $5 billion increase in the allowable limit for FII investment in both government and corporate debt, easing external commercial borrowing norms enhancing interest rates on fresh non-resident deposits.
And
on the markets' end, it was RBI's sporadic intervention, as the
central bank sold dollars off its reserves to arrest exchange volatility when greenbacks were in short supply.
Between November 2011 and March 9 this year,
RBI's foreign currency assets have shrunk by $4.7 billion - 1.8 per cent.
And now, again, the fear of the rupee loosing its relative strength to the dollar is making rounds with expectations of the rupee touching, or even breaching its lifetime low of December last year.
Economists attribute the weakness to the twin deficits which India is struggling with.
One, the
fiscal deficit, shot up to 5.9 per cent of GDP in 2011-12 and is projected to be 5.1 per cent according to the Union Budget announced on March 16.
And, two, the current account deficit - the difference between the nation's total exports of goods, services and transfers, and its total imports. For the quarter ended December 2012, the current account deficit widened to $53.7 billion, 4 per cent of GDP, from $39.6 billion (3.3 per cent of GDP) a year ago.
Financing of the current account deficit will continue to pose a major challenge, RBI acknowledged in its annual monetary policy review released on April 17.
The dollar is gaining its own strength thanks to better than expected
economic numbers in the US, coupled with rising risk aversion especially in
the Euro zone over the last three months.
A softening in crude oil prices has delayed the timing of the
rupee in reaching 52 level, says a note from Alpari Forex (India), one of the leading forex brokers in the country.
But a
U-turn in oil prices could prompt stronger action from RBI to control imported inflation by helping the rupee to strengthen and thereby reducing the impact of higher crude oil prices.
Overall, from the perspective of vulnerabilities emerging from the fiscal and current account deficits, it is imperative for macroeconomic stability that administered prices of petroleum products are increased to reflect their true costs of production, RBI pointed out in its recent monetary policy.
Such an increase would have an impact on headline inflation which would inch up and put further pressure on the rupee.
Alpari Forex (India), based on technical indicators, predicts that a successive move of the rupee above 52.5 a dollar could be the start of a weakening trend, with the rupee approaching or even surpassing 54-levels.
So, unless RBI resorts to intervention again, going forward the weak rupee is likely to weaken further.
Special 
