Rupee drops to all-time low of 52.84/$

The rupee closed at an all-time low of 52.84 a dollar on Monday against 52.04 on Friday, as dismal IIP data and European debt concerns made investors resort to the dollar as a safe haven.

The contraction in the Index of Industrial Production (IIP) by 5.1 per cent in October — the first time since June 2008 — was the major trigger on Monday. Traders said even the central bank’s intervention was unable to stem depreciation as markets reacted to the lower than expected industrial production data. Oon Mondayn Monday, the currency fell by 1.5 per cent, the steepest in three weeks.

“There is nothing positive for the rupee at this stage. The uncertainties (and complexities) in the euro zone are adding to dollar strength, with the Dollar Index holding above 78.20. The other immediate concerns are from a widening trade gap, political issues in attracting long-term capital flows and growth issues leading to a weak stock market,” said Moses Harding, head-global research, IndusInd Bank.

The euro was trading at $1.3258 on Monday as compared with $1.3369 at close in New York on Friday. The Dollar Index against six major currencies rose 0.7 per cent on Monday. Weak domestic equity markets also added to rupee woes. According to the Bombay Stock Exchange, there were net foreign fund outflows of Rs 428 crore on Monday.

Data released by the central bank showed it had intervened to the tune of $1.7 billion during September and October.

Despite the intervention, the rupee depreciated 5.6 per cent during the period. In 2011, the rupee had lost 18.2 per cent against the dollar. In the past three months, the fall was more severe, around 20 per cent.

“Looking at the current economic environment, there is more room for rupee depreciation,” said Ashutosh Raina, chief dealer, HDFC Bank. He added the rupee may further weaken to the 53 levels against the dollar in a couple of days.

The rupee, the worst performing Asian currency in the current financial year, may fall to 54.8 a dollar by the second quarter of 2012, said a research report by Morgan Stanley.

“We see a high risk of rupee vulnerability if the global funding environment deteriorates,” said the report.

According to analysts, the Reserve Bank's inability to aggressively intervene in the foreign exchange market is mainly due to tight liquidity conditions and a high current account deficit (3.1 per cent of GDP as of June-end).

The central bank has said it would intervene in the foreign exchange market only to smoothen volatility, not to target specific levels.