The rupee on Monday hit a 2-year low of 66.89 a dollar as the Indian currency lost more ground against the US currency amidst soaring dollar demand for payments of Iran oil dues and profit-taking by foreign portfolio investors who sold massively in the stock markets.
The low of 66.89 against the dollar was seen last on 4 September 2013, before recovering slightly to close at 68.84 against the US currency.
The Indian unit had dropped to 66.47 at market close on Friday, the previous trading day.
The Reserve Bank of India (RBI) is reported to have made a vain attempt to salvage the rupee with dollar sales to the tune of $2 billion. But, with Iran oil dues alone running up to $6.5 billion, the $2 billion must have only met a part of the combined market demand, say traders.
Foreign portfolio investors, meanwhile, pulled out over Rs800 crore (about $120 million) on Monday alone after they sold $384 million worth of Indian stocks in the first three days of September.
FPI stock sales pushed the Bombay Stock Exchange sensitive index below the 25,000-points level, the lowest in the last 15 month, while the National Stock exchange Nifty closed 96 points down at 8,559 points on Monday.
The RBI officially does not enter the forex market to set a price for the rupee but intervenes only when there is excess volatility in the market. But, with China devaluing its currency twice in a month there has been a clamour for a similar devaluation of the Indian rupee to save exports.
India last devalued the rupee in early July 1991, following a balance of payment crisis and the country sought a $2.2 billion bailout from the IMF as forex cover dipped to just three weeks or about $500 million.
Following this, the rupee was devalued twice in a week to the tune of around 20 per cent.
The first official devaluation took place in 1966.
Since China officially paired down the official value of the yuan in July by close to 5 per cent and since then allowed it to fall further in the market following a massive route in the stock market which has lost more than half of its value since June, the rupee and the domestic stock markets have been under stress
And as foreign investors sold over $500 million worth of Indian stocks in four days of trading, State Bank of India chairperson Arundhati Bhattacharya said the rupee must fall further to help domestic exporters.