Rupee crashes 2% to 65.50 against dollar, hits record low

Rupee crashes 2% to 65.50 against dollar, hits record low

The Indian rupee plunged over 2 per cent to hit an all-time low of 65.50 against the dollar on Thursday. The partially convertible rupee surpassed the previous record low of 64.55 hit just yesterday. The rupee had closed at 64.11 on Wednesday.

Markets tracked the rupee and traded lower for the 5th consecutive session. There was some recovery, but the Nifty traded well below the key 5,300 levels as of 11.25 a.m. Banking stocks led the decline on fears of foreign selling after rupee hit another record low.

The rupee weakened tracking the strength in the dollar index, which measures the greenback versus a basket of six currencies. The dollar index rose to 81.422, from a low of 80.896.

Fresh weakness in the rupee comes after minutes from the Federal Reserve's July policy meeting showed the U.S. central bank was on track to start tapering stimulus as early as next month.

Top officials of the Fed were mostly in agreement that the central bank should end its massive bond-buying program, which has been in place in one form or another since late 2008 to keep interest rates low and encourage economic growth.

A Deutsche Bank report on Wednesday had predicted the rupee's slide all the way to 70 in a month or so. (Read: Rupee staring at 70?)

The Reserve Bank of India has proven unable to stem the rupee's selloff, despite intervention and curbs on outflows from companies and individuals, which have dented India's stock and bond markets. The government continues with incremental steps, banning duty-free import of flat-screen televisions.

The RBI's announcement on Tuesday to reverse its tightening strategy and start buying bonds has further confused traders.

"In our view, the problem is that the RBI is trying to juggle too many balls, which sends confusing signals and damages its credibility," Nomura said in a report on Wednesday.

However, Arvind Narayanan of DBS bank told NDTV that it is unfair to blame the Reserve Bank.

"There is no magic wand here. The rupee is behaving in-line with broad fundamentals of the region. The only thing we can do is to attract long term capital inflows," he said