The rupee's free fall continued as it closed at a new record low of 53.72 to the dollar on the back of a weak euro, outflow of foreign funds, high inflation, and growth slowdown. During the course of the day's trading it even breached the 54-mark.

According to dealers, there was heavy dollar demand from importers, especially oil companies. The weakening of the euro in the overseas market fuelled ‘panic dollar buying', perhaps in anticipation of further dollar appreciation, said a public sector bank dealer.

However, taking advantage of the weak rupee, some exporters, especially software companies, sold dollars and this provided some cushion to the rupee, said dealers.

The rupee closed 50 paise lower on Wednesday, against the previous close of 53.23. It had briefly crossed the 54 level during the day when it touched 54.67.

Deteriorating fundamentals

A report by Standard Chartered Bank said, “Deteriorating Indian fundamentals have added to the worries about the rupee. Below-trend GDP growth in the July-September 2011 period and a poor start to Q3-FY12 — October IIP was similar to the levels seen in early 2009 — confirm India's economic slowdown.'' The wholesale price inflation for November at 9.11 per cent was lower than 9.73 per cent in October. However, this number was still higher than expected and, hence, the rupee will continue to have a bearish outlook, said dealers.

“The expectation was that inflation would be lower than 9 per cent. However, since it is still above 9 per cent, the fear is that RBI may not cut interest rates.

“At best, it may desist from further rate hikes,” said a forex dealer with a private bank.

A depreciating rupee would also limit the decline in inflation, said a report by rating agency Crisil.

> priyan@thehindu.co.in

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