The rupee recorded its lowest-ever close against the dollar on Tuesday, with a fall of 1.5 per cent, ahead of the U.S. Federal Reserve’s monetary policy meeting on Wednesday. Traders believe that the widening current account deficit (CAD) continues to depress the value of the rupee.

The rupee closed at 58.77/78 per dollar compared to its previous lowest close of 58.39 recorded last week. If the Federal Reserve decides to withdraw its monetary stimulus programmes, the rupee is likely to fall further. This is bound to further delay a rate cut by the Reserve Bank of India (RBI).

“Rupee might have become a victim of a carry trade unwind, as a sharp appreciation in yen and depreciation in the rupee since mid-May has become a pain trade for foreign institutional investors (FIIs) who have invested in Indian debt paper,” said Anindya Banerjee, Currency Analyst, Kotak Securities.

“The first four months of 2013 saw over $3.6 billion of inflows in the Indian debt segment and between May and June till date, over $3.5 billion has moved out. Such a sharp outflow within such a short period of time continues to pressure the rupee,” said Mr. Banerjee, adding, “Now all eyes are on the Fed meeting .”

Equities fall

The Bombay Stock Exchange (BSE) 30-share sensitive index (Sensex) lost 102.59 points to end at 19223.28. Bank stocks were the worst hit, with a loss of 1.20 per cent followed by consumer durables at 1.09 per cent. However, metal stocks, which lost 0.13 per cent on Monday, were the biggest gainer at 0.75 per cent. On the National Stock Exchange, the Nifty closed at 5813.60—a fall of 36.45.

“In the absence of any major domestic cues, market is awaiting the outcome of the U.S. Fed meet scheduled for Wednesday,” said Jayant Manglik, President, Retail Distribution, Religare Securities.

Correction

The article has been edited to reflect the following correction:

The fourth paragraph of the article read: “The first four months of 2014 saw over $3.6 billion of inflows in the Indian debt segment …” It should have been the first four months of 2013.

More In: Markets | Business