MUMBAI: The rupee skidded to an all-time low on Tuesday as oil refiners and other companies scrambled to buy dollars, with the currency looking increasingly vulnerable to a swelling current account deficit.
Exposure to short-term portfolio flows, a rising oil import bill and slowing export growth have heightened the risk on the rupee and the outlook remains bearish.
There is also the increasing likelihood the US super committee will fail to reach a deal on debt restructuring, which could trigger another major round of selling of in emerging market and risky assets.
At 2.24 pm, the rupee was at 52.31 per dollar, after touching an all-time low of 52.73, and 0.8 percent weaker than its previous close of 52.1550/1650.
Reacting to the sharp rupee depreciation, Finance Minister, Pranab Mukherjee said that the Reserve Bank of India's intervention in the forex market will not help in limiting the fall. He said that exit of foreign institutional investors from Indian equities and global uncertainty led to such a sharp fall.
However, the Bombay Stock Exchange's Sensex was on a firm foot after a sharp correction in the past few sessions as value-buying emerged in largecap stocks near crucial support levels. The market is likely to extend intra-day gains as the European peers have also opened in the green.
The winter parliament session began on a stormy note as the opposition parties boycotted Home Minister P Chidambaram on alleged 2G spectrum case. The proceedings at Lok Sabha have been adjourned till Wednesday.
Lokpall Bill, Judicial Standards and Accountability Bill, Pension Fund Regulatory & Development Authority Bill, Seeds Bill, Life Insurance Corporation (Amendment) Bill, National Food Security Bill, Prevention of Money Laundering (Amendment) Bill etc will be discussed in the parliament in this winter session
At 1:30 pm; the Sensex was at 16178.86, up 232.76 points or 1.46 per cent. The 30-share index touched intraday low of 15970.11 and high of 16192.34
The National Stock Exchange's Nifty was at 4838.90, up 60.55 points or 1.27 per cent. The broader index touched a high of 4846.80 and low of 4782.55 in trade so far.
BSE Midcap Index was up 0.26 per cent and BSE Smallcap Index edged 0.14 per cent higher.
Amongst the sectoral indices, BSE IT Index was up 2.73 per cent, BSE Metal Index gained 1.97 per cent, BSE Auto Index advanced 1.61 per cent and BSE Bankex was 1.20 per cent higher. BSE FMCG Index edged 0.39 per cent lower.
The European markets opened with a gap down after getting hammered badly. CAC 40 was up 1.40 per cent, FTSE 100 moved 0.82 per cent higher and DAX advanced 1.09 per cent.
RBI view
Describing the sharp depreciation of the rupee as "disruptive", the Reserve Bank said any action to arrest the fall will be guided by medium-term considerations.
"We don't really have a target or a rate in mind. It's moving as per market dynamics. It (fall in the value of the rupee) is disruptive, there is no question. There (will be) impact on our import bill, particularly for energy. It's having an impact on companies and it is a problem," Reserve Bank Deputy Governor Subir Gokarn told reporters here.
On the possibility of action by the central bank to arrest the fall of the rupee, Gokarn said, "Any action we take now (will) have to take into account the fact that these actions might have consequences a little further down the road. So we have got to balance out actions with risks or a potential increase in vulnerability later on..."
"Actions have to be weighed in terms of their medium-term risks," he added.
The immediate impact of the fall in the value of rupee, he said, will be on the inflation rate, which has been hovering near the double-digit mark for several months.
"We should not be looking at only the short-term when we make these judgements. Every action that has been suggested... that has been debated, also has potentially adverse consequences down the road. So we have got to balance out those too."
Although the RBI has been maintaining that the exchange rate should be market-determined, it is volatility that has been worrying the central bank.
"... Volatility is another thing. This is the sharpness and speed of the movement that is obviously creating some disruptions. We don't know where it is going to go, but it is something we need to watch out for," Gokarn said.
