Rupee on Friday closed below the key 57-mark against US dollar for the first time in a year sliding by 22 paise to 57.06, casting a shadow on the economy as imports become costlier, Current Account Deficit woes worsen and inflation risks rise.
At the Interbank Foreign Exchange (Forex) market, rupee resumed higher at 56.70 on initial rise in local stocks. It, however, later turned negative on heavy dollar demand from importers, mainly oil refiners, to touch a low of 57.12. Rupee finally ended at 57.06, a fall of 22 paise or 0.39 per cent.
A weak rupee makes imports costlier, including oil and other commodities. It also affects dollar-denominated liabilities of corporates. However, export-oriented sectors like IT are expected to benefit from a weak rupee. In three straight days, the local currency has tumbled by 62 paise or 1.1 per cent. On a weekly basis, the rupee fell for the fifth consecutive week as it lost nearly 1 per cent.
"Rupee had shown weakness in the recent trading sessions due to external factors like apprehension about tapering of QE by US Fed along with strengthening of dollar. Also, concerns regarding high CAD level had also pulled down the domestic currency. Rupee will remain under pressure in the near-term," IDBI Bank Treasury Head N S Venkatesh said.
FIIs pumped Rs 158 crore in stocks but was of no help to rupee. Concerns about India's CAD had depreciated rupee by nearly 5 per cent in May 2013 despite of huge foreign inflows.
Sensex at 6-week low as rate cut hopes dim
In a volatile session, the BSE Sensex today failed to build on early gains and closed 90 points down at six-week low as rate-sensitive sectors like auto and banks saw selling pressure ahead of RBI policy review, amid sustained weakness in rupee that tumbled below 57-mark.
Taking a U-turn in second half after gaining 192 points, the Sensex saw profit-booking as global investors also adopted a cautious stance ahead of US jobs data, said traders. Auto stocks including M&M, Maruti and Tata Motors fell in 1.5-2.3 per cent range. Among banks, ICICI, HDFC and SBI ended lower.
Sensex ended at at nearly six-week low of 19,429.23, a fall of 90.26 points or 0.46 per cent. It was second day of losses after the index declined by 48.73 points.
Ahead of its mid-quarter policy on June 17, RBI today said its monetary actions in the coming months will be determined by the "monsoon outlook" and ensuing impact on inflation. This triggered selling by investors, who were betting on a rate cut by RBI this month, said experts.
The broader NSE 50-issue CNX Nifty dropped by 40.40 points, or 0.68 per cent, to end below 5,900-mark at 5,881.00 -- a level not seen since April 26, 2013. Also, MCX-SX flagship index, SX40, ended down by 67.62 points at 11,528.