MUMBAI, MAY 12: Cheering IT companies and exporters, the rupee plunged below the 42 level against the dollar for the first time since April 2007 on Monday after industrial production expanded at the slowest pace in six years. Moreover, high oil prices also boosted demand for dollars from oil companies, putting pressure on the rupee.

The rupee declined by 1.2 per cent at 42.115 before closing at 42.05, a gain of over one per cent from Friday’s level of 41.60/ 61. The currency fell 2.3 per cent last week, the most since 1998. It declined around 6 per cent this year, the second worst among the 11 most-traded Asian currencies after the South Korean won. The rupee rose more than 12 per cent in 2007. “The rupee’s fall buoyed stocks of IT and export-oriented companies as they will benefit from the currency’s depreciation,” said a dealer.

The industrial production data sparked dollar buying by foreign and private banks, which then triggered stop-loss orders to exit positions based on the dollar weakening that accelerated the rupee’s fall. Support for the currency was already fragile as record oil prices have boosted dollar demand from refiners, and last week’s stock market losses had raised concerns about foreigners withdrawing investment funds.

Exporters are holding back on their dollar holdings on expectations the rupee may weaken some more, forex dealers said. Following the rupee’s sharp fall there was talk about some large hedge funds exiting some large short-dollar positions by buying dollars in the market. “Without a current account surplus it is perhaps too much to expect the Indian central bank to be able to manage a currency with trend appreciation in the current environment,” UBS said in a recent note.

The rupee also fell on concerns of costlier oil inflating India’s import bill. The currency fell last week as crude oil in New York rose by 8.3 per cent, the most since March 2007, to reach an all-time high of $126.27 a barrel on May 9. Oil has been a major concern, boosting dollar purchases by oil companies and prompting all who need foreign currency to buy it sooner than later.

On the downhill

•High oil prices put pressure on rupee

•IT firms and exporters to benefit from falling rupee

•Importers, especially oil cos, scramble for dollars