The Hindu : Business : Rupee surpasses 50-mark

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Thursday, Nov 20, 2008
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Rupee surpasses 50-mark

Heavy dollar outflow, global economic crisis push down rupee

MUMBAI: The rupee closed at its all-time low of 50.02/03 on Wednesday against the dollar after losing 35 paise on relentless capital outflows, sustained demand for the dollar and weak equity markets.

The domestic unit had first breached the psychologically crucial 50-level on October 24. The rupee, which has been on losing-spree for the past two days, has fallen by a hefty 101 paise or 2.06 per cent. However, the loss is a mind-boggling 10.61, or 26.92 per cent, since January this year.

The rupee’s continuing weakness is in sharp contract to its gaining strength — to the level of below 40 — barely a year ago. Riding on strong capital inflows, the key driver of the local currency, it had closed at 39.41 on December 31, 2007.

However, the global scenario has changed since then and the rupee started weakening after capital begun flowing out following the breaking out of the global economic crisis.

FII pullout

The foreign institutional investors have pulled out nearly $13 billion so far in the current calendar year. On the other hand, they had pumped in more than $17 billion in 2007.

Dealers in foreign exchange said there was strong demand for the U.S. currency from oil refiners for their import payments against very little dollar sales. Dollar supply was scarce for the past one year or so, it has been further squeezed ever since the economic crisis emerged in the U.S.

Though the dollar has been on a declining trend against its major rivals, experts were baffled at its appreciation even took a heavy toll on the U.S. economy.

The domestic currency moved in a wide range between 49.54 and 50.04 during the day after early signs of a recovery in sync with an initial surge in equity markets on fresh hopes of further monetary measures by the central bank.

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