The Indian rupee on Friday closed below the key 57-mark against US dollar for the first time in a year, sliding by 22 paise, casting a shadow on the economy as imports become costlier, current account deficit (CAD) woes worsen and inflation risks rise.
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.
At the Interbank Foreign Exchange (Forex) market, the domestic currency 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. The rupee finally ended at 57.06, a fall of 22 paise or 0.39 per cent.
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.
Amid rupee crossing 57-mark, RBI Governor D Subbarao said: "RBI does not target any exchange rate. We intervene in foreign exchange market only to manage the volatility and to manage disruption to the macro economic situation."
Analysts expect the rupee to revisit its all-time low of 57.32 hit June-end last year as early as next week.
Pramit Brahmbhatt, CEO, Alpari Financial Services (India) said: "The trading range for the spot USD/INR pair is expected to be within 56.80 to 57.30."
Meanwhile, dollar index was trading down by 0.30 per cent against a basket of six major currencies ahead of US monthly jobs data.