Rupee recovers from record low but outlook gloomy

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The Indian rupee, which Tuesday slipped to a new low of 53.50 to a US dollar intra-day, recovered a bit, but weakness in the currency persisted as demand for the green-back from importers and banks rose amid global uncertainty.

A depreciating rupee will make oil imports costlier, again increasing pressure on oil retailers to hike prices of at least de-regulated fuel like petrol, adding to upward inflationary pressures.

The rupee started on a weak note at about Rs.53.10 to a dollar at the Interbank Foreign Exchange compared to its previous close of Rs.52.84/85 per dollar. It fell to the record low of 53.50 a dollar in intra-day trade but recovered somewhat later on.
Around 5.20 p.m. the Indian currency was at 53.18 to a dollar. A minor rally Tuesday at Indian stock markets also helped steady the currency.

Data on industrial output that reported a decline to minus-5.1 percent in October, worse than what industry and experts had earlier feared, had triggered rupee’s decline in the currency market Monday.

Bearish sentiments took a strong grip on domestic equity markets which led to foreign investors selling their interests, again leading to increased demand for the dollar. If overseas funds intensify their selling in the coming days, the rupee could again slip further. The Indian currency has lost 16 percent in the past four months itself.

Eyes are now on the Reserve Bank of India (RBI), whether it will intervene again in arresting the rupee’s decline - like it did in September and October. The central bank had sold $845 million and $943 million in September and October respectively to support the currency, according to data available with the RBI.

It did not buy any dollars in both months. Analysts also blame the pressure on the rupee on the country’s widening current account deficit, which has tripled to $14.1 billion in the April-June quarter of current fiscal, when compared to the previous quarter.

The difference between a country’s imports of goods, services and its exports is called current account deficit. For the whole of 2011-12, current account deficit is expected to be around $54 billion.
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