Mumbai, Aug 28 (IANS): High month-end dollar demand from oil importers and private requirements pushed the partially-convertible Indian rupee to a new record low of 68.80 against the dollar Wednesday.
The rupee closed Wednesday at 68.80 -- a depreciation of 3.8 percent from its Tuesday's close of 66.25 against the dollar.
The high month-end demand from oil importers and private orders worth $300-$400 million in the start of the day's trade also escalated the dollar demand.
The sharp volatility in the rupee was sustained throughout Wednesday even after the central bank's intervention. The decline in the rupee value spooked foreign institutional investors (FIIs) which turned into net sellers in the Indian equities markets.
The rupee's continued devaluation came at a time when concerns grew over the widening of the fiscal deficit on account of the National Food Security Bill that would entail an expenditure of nearly Rs.1.3 lakh crore ($20 billion).
Lack of confidence in the Indian economy has also undermined the rupee's value. There are apprehensions about the soon-to-be-released first quarter gross domestic product (GDP) numbers being below expectations.
Escalation in tensions in Syria with a possible US intervention and, thereafter, the fallout on the oil prices is also a major concern.
"There are specific issues which are affecting the rupee; like the bad timing of introducing the National Food Security Bill and escalation in tensions in Syria with a possible US intervention and, thereafter, the fallout on the oil prices," Anindya Banerjee, currency expert, Kotak Securities told IANS.
Various remedial steps were suggested by industry bodies like the Confederation of Indian Industry (CII) and Associated Chambers of Commerce and Industry of India (Assocham).
The CII called for absolute curb on speculative activities in the currency market and for the government to issue sovereign guaranteed bonds.
"Every effort has to be made to ensure that speculative activity on the currency is checked. In the immediate term consideration has to be given to issuing a sovereign guaranteed bond which would be of a substantial amount," Kris Gopalakrishnan, president, CII said.
According to CII, speculators have taken advantage of the rupee's devaluation of more than 19 percent against the Dollar and the central bank should do more to curb speculation.
Meanwhile, Assocham suggested convening of a meeting of major economies to forge a joint strategy to face up to the unilateral actions of the Federal Reserve which is causing havoc in the global equity and to the currencies of emerging economies.
On Tuesday, Commerce Minister Anand Sharma said the government was looking at the option of currency-swap agreements with key trading partners.
Currently, India has currency swap agreements with Japan worth $15 billion and Bhutan of about $100 million. Others like China and South Korea too have shown interest in entering into such an agreement with India.