Mumbai: The rupee on Wednesday sank to 10-month low before closing with 21-paise loss at 56.17, making imports costlier that is likely to worsen government's Current Account Deficit (CAD) woes and hit the common man hard.
The fall would have been much more pronounced, had there not been sustained capital inflows worth of over USD 100 million in equities, forex dealers said.
At the Interbank Foreign Exchange (Forex) market, the domestic unit commenced lower at 56.18 a dollar from previous close of 55.96. While it recovered to 56.00 but it quickly fell back to a low of 10-month low of 56.37, before settling at 56.17 -- a fall of 21 paise or 0.38 percent.
Yesterday, it had tumbled by 39 paise or 0.70 percent.
The rupee has slumped by over 4.4 percent in May so far.
Pramit Brahmbhatt, CEO, Alpari Financial Services (India) said: "The heavy demand for the dollar from gold, oil importers and defence-related buying forced the rupee to deperciate. However, the rupee's fall was capped as dollar traded weak against other major currencies later."
The global rally in dollar and concerns about India's CAD has depreciated rupee this month despite of huge foreign inflows into stocks and debt, he added.
A weak rupee will make imports costlier, including oil and other commodities, that will have a cascading effect on inflation.
CAD hit a record high of 6.7 percent of GDP in Q4 2012 and was expected to narrow to 4-4.5 percent of the GDP in the first quarter of this calendar year on the back of cheaper commodities.
IDBI Bank Head of Treasury N S Venkatesh said: "Rupee weakness was mainly due to strengthening of dollar against all major currencies on the back of positive economic data emanating from that country. However, rupee recovered in the later half in sync with Euro."
Meanwhile, the Indian benchmark S&P BSE Sensex today eased by 13.18 points, snapping three-day rally.
"The rupee is seen sinking to its 10-month low against the US dollar owing to strong data from the US and dollar buying pressure in the local market. Although the stock markets are trading positive and FII flows are on the rise, still rupee continues its weakness against the US dollar," said Abhishek Goenka, Founder and CEO, India Forex Advisors.
Premium for forward dollar edged up further on sustained payments from banks and corporates.
Benchmark six-month forward dollar premium payable in October moved up to 146-148 paise from Tuesday's close of 145-147 paise.
Far-forward contracts maturing in April also firmed up to 309-311 paise from 304-1/2-306-1/2 paise.
The RBI fixed the reference rate for the US dollar at 56.2430 and for the euro at 72.3240.
The rupee remained weak against pound sterling to 84.74 from previous close of 84.61. It also moved down further against the euro to 72.74 from 72.40.
Rupee, however, fell back sharply against against the Japanese yen to 55.44 per 100 yen from 54.86.
First Published: Wednesday, May 29, 2013, 18:53