Rupee plunges below 50 after over two years,RBI intervenes

* The currency has fallen 11.90 per cent against dollar so far this year

Aggravating the inflationary pressures and making imports costlier,the Indian rupee closed below the 50 level against the dollar for the first time in 30 months on Friday as importers scrambled to buy the greenback to cover their liabilities. If the rupee falls further and oil prices rise,it could turn out to be bad news with petroleum companies coming under further pressure.

Putting pressure on the domestic unit due to increased risk aversion ahead of two crucial summits of European Union leaders,the rupee fell for the second consecutive session and closed at 50.01/02 after touching an intraday low of 50.32 its highest level since April 28,2009 and down from 49.80 late Thursday. The rupee had settled at 50.04/05 on April 29,2009.

The recovery from 50.32 level to 50.02 seems to be due to the RBI intervention. The RBI might have sold the dollars to prevent further slide, said a dealer. Forex market sources said the RBI sold dollars to stabilise the Indian currency. The speed of the rupees fall was surprising,given that other asset classes were relatively stable,and it reinforces the bearish trend for the currency in the near-term, said Moses Harding,head of the global markets group at IndusInd Bank.

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Finance Minister Pranab Mukherjee discussed the rupee fall with Reserve Bank Governor D Subbarao. The RBI chief also reviewed the high-level of inflation with the Finance Minister,ahead of the quarterly review of monetary policy next week,amidst expectations of another hike in key interest rates. The Governor of RBI will come and I will discuss with him this (rupee weakening) issue, the Minister said earlier in the day.

With this,the rupee has fallen 11.90 per cent against the dollar this year. Heightened risk aversion due to the crisis in the developed world and a negative outlook on local stocks,coupled with concerns about the large current account deficit,have weighed on the rupee. Within India,pressure on the current account deficit and excess outflows on capital account front will keep pressure on the rupee.

However,a strong dollar is a cause of celebration for exporters who have shown a good performance and IT companies which get a lions share of their revenue in dollars. Exports have grown by over 50 per cent during April-September despite weak demand in the US and Europe. With global risk appetite proving volatile and growth slowing,capital inflows could remain under pressure,leaving the rupee likely to underperform the rest of the emerging Asian currencies for the remainder of the year.

The RBI has always maintained that it does not target any specific exchange rate and only intervenes to prevent excessive volatility in the foreign exchange market. Any intervention by the bank only be confirmed when it releases data in December. With agencies

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