Rupee weakens to lowest level in eight weeks

Ends at Rs 54.88 against the dollar after weakening to Rs 55.13 during the day

The rupee fell to its lowest level in nearly two months and breached the Rs 55 to a dollar mark on Monday after data showing a record trade deficit and contraction in factory output stoked concern about economic growth at a time of persistently high inflation. The rupee ended at Rs 54.88 against the dollar compared with Friday's close of Rs 54.79, after weakening to Rs 55.13 during the day.

According to S Srinivasaraghavan, executive vice-president and head-treasury of Dhanlaxmi Bank, there was a holiday in the US on Monday, due to which dollar supply was less. Besides, tomorrow and the day after are bank holidays due to Diwali, so people were covering up to meet their dollar demands.

In the US, the holiday was on account of Veterans Day, which was November 11. But since that was a Sunday, they were closed on Monday, too.

A few dealers believe the Reserve Bank of India (RBI) intervened in the foreign exchange market through state-run banks, due to which the rupee strengthened from an intra-day low and closed below the Rs 55 mark.

However, it is expected to recover against the dollar on Thursday. “The rupee trading above Rs 55 per dollar may not be sustained for a long time. This is more of a sentiment-driven movement. By the end of this month, it will be hovering near Rs 54 per dollar,” said Pramit Brahmbhatt, chief executive officer, Alpari Financial Services. According to Srinivasaraghavan, on Thursday the rupee will trade in the range of Rs 54.50-55.25.

The rupee's fall to as low as 55.13 has wiped off the gains sparked by the government's announcements of a slew of fiscal and economic reforms in mid-September. That had taken it to as high as Rs 51.32 a dollar, on October 5. It has steadily slipped since then, as investors resumed their focus on an economy set to grow at its slowest pace in a decade and on little prospects of immediate repo rate cuts by the central bank, as it is currently focusing on inflation control.