On Monday, the Indian rupee hit a fresh all-time low below the 94-per-dollar level to close at 94.03 against the US dollar. This drastic fall of 50 paise was fuelled by the increasing world oil prices and the continued outflows of foreign funds which were pressuring on the mood of the investors.
At the interbank foreign exchange market, rupee started at a weaker position of 93.84 and kept on falling during the trading session. It later rose above the crucial 94 mark and closed at record low, a very huge depreciation of its own high of 93.53 on Friday, which itself had declined sharply.
The reason why the rupee has been weak as observed by market analysts, is that there has been an unrelenting impact of the external factors such as high oil prices, and the strengthening of dollar. The dollar index that compares the greenback with a basket of major currencies was slightly higher indicating the global demand of the US currency.
Brent crude prices had been fluctuating at a high level of above 113 per barrel thus contributing to the importation bill of India and further burdening the local currency. Meanwhile, Indian equity markets experienced a brutal sell-off, as benchmark indices fell more than 2 per cent, as foreign institutional investors kept losing money.
To worsen the situation, the Indian forex reserves continued to reduce considerably during the last week, which means that they have a lower cushion against external shocks. Analysts are fearful that, in the short run, the rupee may continue to be under pressure as a result of continued global uncertainty and flight of capital.