Rupee took all by surprise during Tuesday’s trade. First falling to an all time low of 61.80 per dollar, currency sharply recovered and finally closed 11 paisa strong at 60.77 per dollar.
It was a rollercoaster ride for forex traders, who were first fighting to avoid heavy losses as rupee went on sliding to a fresh low after it breached its previous low of 61.21 per dollar which it made on July 8.
The weakness in currency came due to a sudden rise in dollar demand from banks and importers. Currency opened weak at 61.05 per dollar as compared to its pervious close of 60.88 per dollar. But towards the end of the session, after Govnment announced the appointment of Raghuram Rajan, the chief economic advisor as the next Governor of the Reserve Bank of India (RBI), rupee saw a sharp recovery. Raghuram Rajan will now replace Duvvuri Subbarao, whose tenure is going to end on September 4.
Also RBI was earlier seen doing dollar selling around of 61.78 per dollar levels that helped currency to recover from the all time low. Rupee has fell 12.7 per cent since the start of May.
Rupee alone is not the only concern but as currency has weakened, India’s current account deficit (CAD) has been rising and constantly haunting the Indian markets. Experts feel if the weakness in currency continues, there will be a further rise in CAD.
Replying to question asked in Rajya Sabha, Finance Minister, P Chidambaram through a written reply said, “(The government) has taken a slew of initiatives to boost exports and reduce imports, encourage capital flows to facilitate financing of CAD and stem the volatility in the exchange rate of the rupee.”
Referring to the measures taken by the government to support currency, FM said that the measures included raising the rate of interest subvention from 2 to 3 per cent which would benefit exporters and small and medium enterprises.