Indian Rupee falls to record low against US Dollar

October 10, 2008: The rupee slipped to 49.30 per dollar today in early trades, breaching its previous record of 49.07 hit in May 2002.

The Indian rupee fell to its lowest, as the spreading global financial crisis hurt investor sentiment, leading to concerns of a large outflow of foreign funds from India

The main reason for the fall in rupee against dollar at the time when the U.S economy is heading for major crisis is because of the foreigners liquidating their Indian investments to repatriate funds. Foreign funds have pulled out a net $9.4 billion from stocks so far in 2008 after buying a record $17.4 billion last year

Coincidently the domestic economy is also losing pace at a time when the world is close to slipping into a recession. This domestic weakness, independent of the global factors, is another reason for the rupee losing value.

But, more than the real reasons, a market perception that the rupee is weak and that it ought to fall further is adding to the downfall. To some extent this perception is also derived from the notion that exports need to be boosted up at any cost .



Pressure on the rupee to weaken will still remain because dollar demand has strengthened as importers view it won't be easily available in the short term.

Heavy dollar selling by state-run banks, on behalf of the central bank, and increased the CRR cut from 50 basis points to 150 bps pulled the currency off from the lows to end the day at 48.80.

Meanwhile, the Indian Government said it has taken enough measure to encourage inflows from foreign funds. ”The Indian rupee will find its appropriate level. At the moment there is a pressure on the rupee because of liquidity problems and slow down in inflows. A number of steps have been taken to encourage inflows” Finance Minister P Chidambaram said in a statement. "

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