Rupee hits new record low, near key 56-level.

The rupee fell to a new record low in early trade Wednesday, approaching the key psychological level of 56, as another bout of risk aversion swept global markets on eurozone concerns. The partially convertible fell as much as to 55.82 to the dollar. It closed at 55.39/40 on Tuesday, as reported.

The Indian currency has been consistently hitting record lows lately. Finance Minister Pranab Mukherjee yesterday said the government was taking steps to arrest the volatility in the foreign exchange market and that the Reserve Bank of Indiawould intervene when necessary.

"The government is taking a series of steps. However, managing rupee is market-related... there is a lot of volatility," he told reporters in New Delhi. The rupee slid to a fresh low of Rs 55.32 against the US dollar in afternoon trade yesterday as foreign funds pulled out from emerging markets avoiding risky assets.

"As and when the RBI will consider it necessary, they will intervene. It depends on the market forces, and market forces are uncertain," Mukherjee added.

The Indian currency has been the worst performing among its Asian peers, having lost 22 percent this year.

Global risk aversion is putting pressure on the domestic currency as foreign funds are pulling out money. Besides, a widening current account deficit and concerns of investment in India is also putting pressure on the rupee.

To check the sliding rupee, RBI has taken a slew of policy steps to increase dollar flows, including relaxing interest rates caps on non-resident deposits and asking exporters to convert half of their foreign currency earnings into rupee.

The depreciating rupee is also pulling back the domestic stock markets into the red, offsetting all attempts of a bouncebank by the markets.

Source : economictimes.indiatimes.com