Rupee Drops to Lowest Level Since January

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Apr. 25 – India’s rupee closed at 52.68 to the U.S. dollar on Tuesday after briefly falling to 52.865, marking its lowest level in three and a half months. Experts believe the country’s wide current account deficit, stalled financial reforms, and doubts over monetary easing have all led to the rupee’s drop in value.

“At this stage 53.20 looks toppish for the week. The importer dollar demand (from oil firms) seen in the past few days can be characterized as panic buying on worries the rupee could fall more,” said Kamlakar Rao, head of foreign exchange trading at state-owned Allahabad Bank.

Since hitting a 2012 low at 48.60 in early February, the US$/INR exchange rate has surged, reflecting the dropping confidence in the local currency.

Failure by the RBI to defend the rupee could see the US$/INR exchange rate quickly approach the record high of 54.30 hit in mid-December 2011, according to traders.

“They may have to sell a few billion dollars from the precious reserves to push the rupee back to near 49-50 levels, but it will be worthwhile because if they don’t give a signal, demand could definitely put it back below 54,” a senior currency trader told Reuters.

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