The drop in the dollar came despite the finance ministry on Tuesday allowing qualified foreign investors to invest up to $1 billion in corporate debt bonds. This is amongst the most recent initiatives to shore up the sagging rupee, which earlier this month hit a low of 56.40 to the dollar.
The drop in the rupee can be attributed to the widening current account deficit and the inability of fund flows to finance the deficit. A risk averse global environment and the strengthening of the dollar against major currencies has compounded problems for the Indian rupee.
Month end dollar demand from oil importers has also played a part in today's fall of the rupee. Analysts expect the rupee to continue its downward momentum as global problems particularly in Greece and Spain increase.