The rupee recovered from its life-time low of 69.10 and was trading strong at 68.75 as the Reserve Bank of India has stepped in to prevent further losses in the domestic currency.
The domestic unit hovered in a range of 69.10 and 68.73 in the afternoon trade before quoting at 68.75, up 6 paise at 4.10 pm local time.
Earlier in the day, the rupee slumped to 69.10 as rising crude oil prices deepened concerns about the country’s current account deficit and inflation dynamics.
On the domestic front, a widening current account deficit (CAD) due to higher global crude oil prices, and steady capital outflows have weighed on the rupee this year.
Consistent dollar demand from banks and importers, mainly oil refiners, following higher crude oil prices kept the rupee under pressure.
The rupee opened weak by 6 paise at 68.87 against the previous close of 68.61. The domestic unit had touched its previous record low of 68.8650 per dollar on November 24, 2016.
Global oil prices have climbed after the US asked its allies to end all imports of Iranian oil by November. Concerns over supply disruptions in Libya and Canada also pushed prices higher.
Higher crude oil prices and a declining rupee are a double whammy for India, forex dealers said.
Worst performing currency
The rupee has shed 7.7 per cent so far this year at its record low, making it the worst performing currency in Asia, followed closely by the Philippine peso.
“Weakening at this pace shatters confidence. Markets expect RBI (Reserve bank of India) to manage the currency more effectively. The pressure on INR is high, thus in the absence of major action from regulators, 70 levels can be seen,” the head of currency and debt trading at a foreign bank said.
“The RBI has been effectively managing (the rupee) over the years, and they do have ample firepower to manage sharp falls.”
Forex reserves
India's foreign exchange reserves stood at $410.07 billion as of June 15, latest data from the central bank showed.
Oil prices have been rallying for much of 2018 on tightening market conditions due to record demand and voluntary supply cuts led by the West Asian-dominated producer cartel of the Organization of the Petroleum Exporting Countries (OPEC).
Current account deficit
India's January-March CAD widened to $13.0 billion, or 1.9 per cent of GDP, from $2.6 billion, or 0.4 per cent of GDP, from a year earlier.
Despite the rise in CAD, it remains modest relative to GDP and is largely financed by equity inflows, including foreign direct investment, Moody's had said in a note on Thursday, adding that the large foreign exchange reserves provided a good buffer.
“India's low dependence on foreign-currency borrowing to fund its debt burden limits the risk of currency depreciation transmitting into materially weaker debt affordability,” Moody's added.
The dollar was, however, steady against its peers on Thursday, having failed to extend overnight gains amid conflicting signals from Washington on a proposal to restrict Chinese investment as the bitter US-China trade row kept financial markets on edge.