Rupee may fall to new lows on weak outlook

The Indian currency, which recorded an all-time low of 54.3 against the dollar in December 2011, is set to test the levels again in less than six months.

Economists and forex experts expect the rupee to touch 54-55 levels against the greenback in the medium term, on the back of weaker domestic fundamentals.

After recovering to 48-50 levels in the early part of calendar year 2012, rupee has taken a downward path. The currency lost four per cent against the dollar in April and is expected to weaken further.

“The adverse balance of payments, in which capital flows have been insufficient to fund the current account deficit, remains the core reason for this sharp depreciation,” said Abheek Barua, chief economist at HDFC Bank.

The change in India’s sovereign rating outlook from ‘stable’ to ‘negative’ by S&P last week added to the woes of the rupee’s exchange rate. Rupee lost 0.9 per cent last week, as foreign fund outflows worth Rs 3,124 crore from the domestic equity and debt markets, amid sustained dollar demand, dragged it to close at 52.55 per dollar on Friday.