Rupee retreats from record low of 58.98 a dollar

The rupee, which hit a new record low of 58.98 against the US dollar in early trade today, pared some of the losses later during the day helped by dollar sales by exporters and banks.

The Indian currency was trading at 58.34 per dollar at 3.15 pm, still weaker than Monday's closing level of 58.15/16 a dollar.

The finance ministry still thinks the rupee's fundamentals are right and that the domestic currency will stabilise in the next 3-4 days once foreign financial institutions restart the investment cycle.

Dealers at the interbank foreign exchange market said it was active dollar sales by state-run banks that helped the rupee recover form the new lifetime low.

But for market intervention by banks, although limited, the rupee would have plummeted to levels below 59 a dollar, they add.

At 58.98 per dollar, the rupee's weakest against the dollar, the rupee had lost 3.25 per cent so far this week.

Markets also speculate that the government's planned sale of special bonds to non-resident Indians would help stabilise the bond market and that the wholesale price inflation may show continued easing this week as well.

The rupee is weighed down by persistent dollar demand from banks and importers amidst heavy capital outflows brought about by foreign funds investing in India's equity and bond markets.

Added to this are the challenges of the country's rising current account deficit (CAD) and dwindling overseas demand for Indian exports.

On the other hand, a falling rupee could stoke inflation in the Indian economy, which imports most of its crude oil and gold requirements.

Analysts noted that while foreign institutional investors were still net buyers of debt and equity so far in 2013, the risk of their turning sellers could be worse still for the rupee, when any RBI intervention would only help reduce the country's foreign exchange reserves.