The rupee today closed below the 48-level for the first time in two years on strong demand for the US currency whose safe haven status attracted investors in the backdrop of lingering debt crisis in the eurozone.
In a two-way trade at the Interbank Foreign Exchange market, the domestic unit closed 24 paise down at 48.05/06, a level not seen since the last week of September 2009.
Dealers attributed the fall to continued dollar demand from importers and some banks on hopes of further rise in the American currency overseas as worries over Europe's debt crisis deepened after Standard and Poor's yesterday downgraded Italy's sovereign credit rating by a notch.
The dollar gained against the euro in the Asian market in early trade.
"Looking at the global scenario one can expect rupee to trade near 48.50 levels and the trading range for the USD/INR will be 47.65 to 48.30 tomorrow," Alpari Financial Services (India) CEO Pramit Brahmbhatt said.
The rupee had declined to a two-year low of 48.25 in early trade.
However, a smart rebound in local equities helped the rupee to recover some of lost ground and touched a high of 47.91 before settling at 48.05/06.
Traders speculated that if the Reserve Bank would intervene if rupee continues to fall. Its two-year low comes as a bad news for the government already battling inflation as a weak rupee would make imports costlier. India imports nearly 80 per cent of its petroleum products demand.
However, software and merchandise exporters would gain as rupee depreciation will improve their bottom lines.