The Indian rupee fell to its lowest in two months on Monday after data showing a record trade deficit and contraction in factory output stoked fears about economic growth at a time of continued high inflation. The rupee's fall to as low as 55.12 to the dollar on Monday has erased a rally sparked by the government's announcements of a slew of fiscal and economic reforms in mid-September that seen the local currency to as high as 51.32 on October 5.
However, the rupee has steadily slipped since that peak, as investors resume their focus on an economy set to grow at its slowest pace in a decade and on the reduced prospects of immediate rate cuts as Reserve Bank of India retains its focus on inflation. The trade deficit "is negative on the rupee. The uptrend in headline WPI into 8 percent has come into radar now. The rupee will need strong support from the euro to prevent extended weakness beyond 55.10," said Moses Harding, head of asset liability management at IndusInd Bank.
The partially convertible rupee fell for a third session to end at 54.88/89 per dollar, after hitting a session low at 55.12, a level last seen September 13. It had closed at 54.75/76 on Friday. Domestic currency markets will be closed on Tuesday and Wednesday for the Diwali holidays. In the offshore non-deliverable forwards segment, the one-month contract was at 55.15 while the three-month was at 55.75. In the currency futures market, the most-traded near-month dollar/rupee contract on the National Stock Exchange and the MCX-SX closed around 55.11 with a total traded volume of $5.3 billion.