Rupee crashes to 61.17, RBI forced to sell dollars

The Reserve Bank of India (RBI) was forced to sell dollars on Wednesday as the Indian rupee hit a low of 61.17 in early trade, coming perilously close to its all-time low of 61.21 on July 8.

On Tuesday, the rupee had closed at 60.48 to the dollar.

According to television channel reports and news agencies, the RBI reportedly sold dollars via state-run banks. The currency traded at 61.02 as of 9.50 a.m.

The rupee has come under sharp selling pressure after the RBI kept interest rates on hold yesterday and failed to announce any additional steps to defend the currency.

The partially convertible rupee has now erased all gains since the RBI first announced steps to defend the rupee by withdrawing cash on July 15.

The RBI said that it may withdraw the cash tightening steps taken so far in a calibrated manner if the rupee stabilises.

The government is contemplating measures of their own and will announce steps in the next few weeks to curb the current account deficit, its Chief Economic Adviser Raghuram Rajan said Tuesday.

The current account deficit, which hit a record high of 4.8 per cent of gross domestic product in the fiscal year ended in March, is a key source of stress for the rupee.

On Tuesday,RBI Governor D Subbarao said he was opposed to a sovereign bond issuance, another option that could bring foreign inflows, although it would risk sending a signal of weakness to markets.