Mumbai: Worries about the food subsidy bill dragged the rupee to a fresh lifetime low of 66.30 to the dollar on Tuesday before closing at 66.24 as the market ignored government assurances on keeping the fiscal deficit in check.
The rupee fell amid weak local equities, dollar demand from importers and banks, outflows and rising oil prices.
At the interbank foreign exchange market, the rupee resumed lower at 65 a dollar from the previous close of 64.30 and remained in negative terrain through the day. It dropped to a record intra-day low of 66.30 before settling a tad better at 66.24, a fall of 194 paise or 3.02 percent.
The rupee had plunged 148 paise on August 19. The previous lifetime low was 65.56 on August 22.
"The food security bill has raised concerns over the country's fiscal health. Also, Brent oil which rose to USD 113 a barrel due to geo-political reasons was negative for the rupee," said Mohan Shenoi, treasurer at Kotak Mahindra Bank.
The benchmark S&P BSE Sensex stock index fell 590.05 points, or 3.18 percent, to 17,968.08.
Finance Minister P Chidambaram today reiterated the rupee is undervalued and would find its appropriate level.
"The rupee has overshot its true level...We have to be patient, be firm, do whatever is required to be done and rupee will find its appropriate level," he said in New Delhi.
Chidambaram further said the fiscal deficit would be contained at 4.8 percent of GDP even after Food Security Bill subsidies. The food subsidy budgeted this fiscal is Rs 90,000 crore, of which Rs 10,000 crore is towards the Food Bill.
Global rating agency Fitch yesterday warned of a downgrade if the country misses the fiscal deficit target.
The rupee has declined on expectations overseas investors will pull out of India as the US economy recovers and the Federal Reserve eases its stimulus programme.
Investors are also concerned about the current account deficit. After Chidambaram met overseas investors in Mumbai on Saturday, the Finance Ministry said steps to attract capital flows to fund the CAD can be expected within a week.
The Food Security Bill was passed by the Lok Sabha on Monday. At Rs 1,30,000 crore government support, the food security programme will be the largest in the world.
Meanwhile, reports said Brent crude was close to a five-month high amid tension after a suspected chemical weapons attack in Syria.
"Demand from oil importers will force the rupee to trade over the 66.50 level in the coming days." said Pramit Brahmbhatt, CEO of Alpari Financial Services (India). "The trading range for the same is expected to be within 65 to 67."
Forward dollar premiums improved on sustained payments from banks and corporates.
The benchmark six-month forward dollar premium payable in January rose to 238-1/2-243-1/2 paise from the overnight close of 236-241 paise. Far-forward contracts maturing in July firmed up to 459-464 paise from 451-456 paise.
The RBI fixed the reference rate for the dollar at 65.6675 and for the euro at 87.7460.
The rupee plunged further to 102.80 against the pound from the previous close of 100.12 and tanked against the Japanese yen to 67.76 per 100 yen from 65.21. It slumped to 88.36 per euro from 86.00.
First Published: Tuesday, August 27, 2013, 18:39