Rupee rips through all defences, ends at 68.80 against $

Posts all time single-day record fall of 256 paise even as RBI measures fail to arrest the freefall; Govt blames ‘irrational sentiment’ for the decline

Consistent dollar demand from banks and importers kept the rupee under pressure. Sentiment was also hurt by fears of a rising subsidy burden with the passage of the Food Security Bill.

Mumbai (Agencies): The rupee on Wednesday collapsed to a lifetime low of 68.85 against the dollar and closed at 68.80, registering its biggest single-day loss of 256 paise, as global oil prices jumped, deepening concerns about the current account deficit (CAD) and capital outflows.

Consistent dollar demand from banks and importers, mainly oil refiners, following higher crude oil prices, kept the rupee under pressure. Sentiment was also hurt by fears of a rising subsidy burden with the passage of the Food Security Bill. Interestingly, the freefall continued even after Reserve Bank intervened to arrest the slide. The Finance Ministry blamed ‘irrational sentiment’ for the unprecedented fall in the rupee.

At the interbank foreign exchange market, the rupee opened at 66.90 a dollar against 66.24 previously and dropped to 68.75 in late morning deals. It recovered some ground in the afternoon after the central bank was said to have intervened but dropped to an all-time intra-day low of 68.85 before ending at 68.80, a fall of 256 paise or 3.86 per cent.

In three trading days in a row, the rupee has lost 560 paise, or 8.86 per cent, against the dollar. So far in August, it has tanked by 840 paise, or about 14 per cent, and in the current year by 1,381 paise or over 25 per cent.

“There is a shortage of dollars in the market as participants are expecting the rupee to fall to 70-72 level,” said Naveen Raghuvanshi, associate vice-president at Development Credit Bank. “Even corporates are not willing to sell dollars at these levels. Whatever small supply of dollars is seen today, it is coming from the nationalised banks.”

Oil prices climbed on fears a military strike against Syria for alleged use of chemical weapons against civilians would disrupt crude supplies from West Asia. Higher oil prices and a declining rupee are a double whammy for India, which imports 80 per cent of its crude needs. The dollar strengthened overseas on likely tapering of bond buying by the US Federal Reserve from next month, putting pressure on the rupee.

Meanwhile, the Finance Ministry described the sharp fall in the value of the rupee as a reflection of 'irrational sentiment' and said there is no need for panic. "This is an irrational sentiment. It will correct itself. It is important to stay on the course. There is no need to panic," Economic Affairs Secretary Arvind Mayaram told reporters in New Delhi. He was responding to a query on the value of the rupee, which fell to a record low.

Seeking to assure investors, Mayaram said the current account deficit (CAD) in 2013-14 will be much lower than expected. "CAD will be much lower than expected. We have already seen some moderation in CAD," he said. CAD, which is the difference between the inflow and outflow of foreign exchange, hit a record high of $88.2 billion in 2012-13. The government expects to bring it down to $70 billion in the current fiscal. Mayaram further said the government does not plan to ban derivatives trading in the currency market, a move that experts feel could help in curbing speculation.

On Tuesday, Finance Minister P Chidambaram had said the rupee is undervalued and came out with a 10-point action plan to revive the economy, which included promoting exports, encouraging manufacturing, and reducing the fiscal deficit and CAD.