Tracking the meltdown in global stock markets, the rupee on Thursday plunged by 124 paise to close at nearly two-and-a half years low of 49.57/58 against the dollar, posing worries to policy makers on inflation front as a weak domestic currency will make imports costlier.
Traders and bankers said the Reserve Bank of India intervened in the forex market to arrest the fall of rupee, but with little success. However, there was no official comment on RBI's intervention.
Finance Minister Pranab Mukherjee, meanwhile, in New York said RBI will intervene in the foreign exchange market "as and when the situation warrants". "Right now, there is no such situation," he told reporters.
HDFC Bank Chief Economist Abheek Barua said it is suspected that RBI sold dollars today, going by the sudden gains the rupee made, but to me, it was not substantial enough to arrest the fall.
"If the local unit moves the way it is doing now, it will soon breach the technical level of 52 sooner than later. If RBI doest not intervene tomorrow, the situation will completely go out of hand," he added.
During intra-day, the rupee appreciated to 48.68 level.
Forex dealers said the rupee plummeted as importers and rushed to buy dollars amid its sharp rise in the overseas markets to a seven 7-month high against major rivals. The greenback is seen as a safe haven, especially at a time when risk aversion is sweeping through global financial markets.
The sharp fall in rupee comes at a time when the government is battling high inflation. A weak rupee will make imports of petroleum products costlier impacting prices. India imports 80 per cent of the petroleum products requirement.
Decline in rupee's exchange value makes merchandise and software exporters happy as they will have better realisation.
At the Interbank Foreign Exchange (Forex) market, the rupee resumed sharply lower at 48.78/79 a dollar from overnight close of 48.33/34 and touched a high of 48.68.
Later, it fell to a low of 49.59 before settling at 49.57/58, a steep fall of 2.56 per cent. Its last weakest close was 49.77/78 on May 14, 2009. It had registered a biggest fall of 152 paise or 3.08 pct on May 18, 2009.
Meanwhile, BSE benchmark Sensex today tanked 704 points or 4.13 per cent, biggest fall in last 26 months, due to heavy fund outflows due to global financial chaos.
Global stock markets declined by 4-5 per cent, while the US bourses also opened lower.
Union Bank of India Treasury Head VJ Mhatre said one immediate reason for fall in rupee is that FIIs seems to have pulled out in trove which is reflected in the blood bath on the equities markets. Reflecting this, FIIs have dumped rupee.
"In spite unconfirmed RBI intervention around 49.15, the global strength in the greenback refrained from giving in," India Forex Advisors CEO Abhishek Goenka said.
Commenting on the impact of rupee's fall on exports, Dhanalakshmi Bank Treasury Head Manish Sarraf said, "We have a lot many apparel exporters who have hedged."
Many exporters have already done between Rs 46-47. The situation is far too difficult to figure out. When the currency moves in a unidirectional fashion. The people become little hesitant, he added.
Export Promotion Council for Handicrafts Chairperson Arvind Vadra said, "Definitely, handicrafts exporters are also taking advantage of the unexpected situation of the dollar, We are going for hedging."
On inflation front, a trader said that central bank need to intervene strongly, otherwise the fall of the rupee will continue and will drive up inflation.
Meanwhile, food inflation dropped to 8.84 per cent for the week ended September 10 from 9.47 per cent in the preceding week. HDFC's Barua warned cheaper rupee will only drive inflation up with imported price rise.
Meanwhile, New York crude oil was trading above USD 82 a barrel in the European market today.
The RBI fixed the reference rate for the dollar at Rs 48.8205 and the euro at Rs 66.1025.
The rupee premium for the forward dollar also hardened on continued paying pressure from banks and corporates. The benchmark six-month forward dollar premium payable in February shot up to 85-88 paise from 71-73-1/2 paise yesterday and far-forward contracts maturing in August also improved further to 122-126 paise from 110-113 paise previously.
The rupee also continued its south-bound journey against the pound sterling and ended at Rs 76.43/45 from Wednesday's close of Rss 75.59/61 and also remained weak to settle at Rs 66.69/71 per euro from Rs 66.02/04 previously. It too slumped further against the Japanese yen to Rs 64.98/65.00 per 100 yen from Rs 63.34/36.