Mumbai, Aug 21 (PTI): The Indian rupee continued its slide on Wednesday, falling to an all-time low of 64.45 against the dollar in late afternoon trade.
The slide was triggered by sustained dollar demand from banks and importers on the back of a strengthening US currency overseas, coupled with a sharp fall in local stocks.
The rupee resumed lower at 63.45 per dollar as against Tuesday's closing level of 63.25 per dollar at the Interbank Foreign Exchange Market and dropped further to hit a historic low of 64.45 at 1445 hours.
It hovered in a range of 63.10 to 64.45 per dollar.
On Tuesday, the Reserve Bank of India had announced a slew of measures to ease liquidity, including a Rs 8,000-crore bond buyback, to ensure adequate credit flow to productive sectors of the economy.
The measures are aimed at easing liquidity conditions in the market, which has worsened after the RBI's money tightening steps, including raising short-term rates, to curb volatility in the exchange rate of rupee.
The benchmark S&P BSE Sensex dipped by more than 400 points in late afternoon trade
The rupee lost further ground on Wednesday against the British pound as well, going below Rs 101 in afternoon trade.
After crossing Rs 100 per pound for the first time ever in intra-day trade on Tuesday, the rupee had managed to close marginally below this, at Rs 99.04.
However, it slipped further to as low as Rs 101.2 on Wednesday afternoon in the Interbank Foreign Exchange (Forex) market.
The rupee's weakness in recent months has come in the backdrop of various macroeconomic concerns in India, including a ballooning current account deficit and adverse global cues.
The rupee has depreciated by about 22 per cent against the pound in the past three months, from close to 83 in mid-May, while it was at about 80 in March.
The pound has become the first major foreign currency to cost more than Rs 100 apiece. It is the most expensive against the Indian rupee among major foreign currencies, followed by the euro, Swiss franc, US dollar, Canadian dollar, Australian dollar, New Zealand dollar and Singapore dollar.
The rupee could touch 70 against the US dollar in a month, although some revival of the currency is expected by the end of the year, Deutsche Bank said in a research note Wednesday.
“Fundamentally the rupee is undervalued and has overshot its equilibrium level substantially,” the German banking major said adding “under a scenario of deep pessimism, currencies can overshoot substantially and remain so for a long time. India, we fear, is entering such a zone.”
“We now believe that the rupee could touch 70 to the USD in a month or so, although we expect some revival of the currency by the end of the year as the reality of taper turns out to be less disruptive down the road than it is now, and the current account deficit continues to decline,” Deutsche Bank said.
It noted that, while the government has taken a slew of measures in recent months to prevent this vicious cycle, and though some of these measures like enhanced provision for FDI are likely to serve India well in the long term, a number of measures have also suggested “haphazard decision-making”.
The research note further added that episodes of currency crisis also cause a range of negative spillovers, the most crucial of which is the health of the financial sector as rupee depreciation and rising cost of financing will put Indian borrowers under further stress.
According to Deutsche Bank, considering such risks (pushing up bad loans sharply, damaging the balance sheet of corporations and banks), “ratings agencies may be nudged toward a downgrade, although conditions have to be weak for another quarter or two before that were to transpire.”
“Given the weak state of the fiscal position, this may entail a major rethink of the expenditure programme (especially plan spending), accelerated sales of state-owned assets, and a major external bond issuance with a credible set of macro-fiscal-structural policies underlying the programme,” the report added.