Rupee ends at two-month low

Mumbai, Nov. 12: The rupee today breached the 55-mark in intra-day trade and closed at a fresh two-month low, pressured by the double whammy of a record trade deficit and poor industrial production data.

On the inter-bank forex market, the domestic currency closed at 54.88 against the dollar, lower by 13 paise after it slumped to an intra-day low of 55.12, a level not seen since the middle of September.

Forex experts feel the pressure on the currency is likely to continue as the negative news renewed fears about the slowdown in the domestic economy. On the other hand, a firm inflation is unlikely to see the Reserve Bank of India bringing down interest rates.

The rupee started trading better at 54.68 a dollar from last Friday's close of 54.75 and immediately touched a high of 54.61 as an initial firm trend was established on the local stock market.

However, an unexpected 2.5 per cent fall in the index of industrial production (IIP) data for September, rise in retail inflation to 9.75 per cent and record-high trade deficit at $20.96 billion in October pulled the currency to a low of 55.12 as the demand for dollars surged.

Sustained demand for dollars from importers and the weakness in local equities put pressure on the currency.

However, with the dollar index quoting lower by 0.10 per cent against a basket of currencies, the rupee recovered some ground to close at 54.88, still showing a loss of 13 paise, or 0.24 per cent, over Friday's close.

Experts aver that the record trade deficit may force the government to introduce fresh measures such as an increase in the import duty on gold.

Global investment banking firm Credit Suisse said while the trade deficit of $20.96 billion was the country's worst on record, it might see the government bringing measures to bridge the deficit and this might include another increase in gold import duties.

Indranil Pan, chief economist at Kotak Mahindra Bank, said the September IIP contraction of 0.4 per cent along with October CPI inflation of 9.75 per cent and trade deficit of nearly $21 billion underlined the complexity of India's policy management.

"Compared to their respective previous data releases, all three indicators have worsened. From the RBI's perspective, it becomes extremely challenging to formulate a policy that supports growth even as it shields against inflationary expectations getting unhinged," he said, adding that there will be a pause from the central bank in December and a 50-basis-point repo rate cut in the fourth quarter of this fiscal.

The repo rate is that at which the RBI provides liquidity to banks.

Stocks jittery

Samvat 2068 ended on a cautious note as the BSE benchmark Sensex today lost 13.3 points to close at 18670.34 on selling over sticky retail inflation, weak industrial output and record high trade deficit.

The Sensex, which had lost 219 points in the past two days, resumed a tad higher but moved in a narrow range of over 140 points before concluding 13.34 points lower at 18670.34 ' extending the string of losses to three straight days.

In the 30-share Sensex, 19 stocks declined, led by two most influential stocks, ITC and RIL, that fell over 1 per cent each.

Tata Steel, which fell 1.93 per cent, was the worst performer among the Sensex constituents. The falling trend was cushioned to some extent as HDFC Bank, SBI, TCS and Bharti Airtel logged 0.8-1.4 per cent gains.

The broad-based National Stock Exchange index Nifty eased by 2.55 points, or 0.04 per cent, to close at 5683.70.

The Sensex rose around 8.2 per cent in Samvat 2068.