Rupee sinks to a new lifetime low; investors seek refuge in the dollar

Business

oi-Sunil

By Sunil Fernandes

Published: Thursday, May 31, 2012, 9:50 [IST]

The rupee went into a free fall, sinking to a new lifetime low of 56.50, breaching its earlier record of 56.40 to the dollar, as increasing risk aversion paves the way for investors to seek refuge in the dollar.

At 9.25 am IST, the rupee was seen trading at 56.42 against the dollar, on sustained demand from oil importers.

Risk aversion due to the ongoing problems in Greece and the fresh woes in Spain has resulted in renewed demand for the dollar, which has now hit a two year high against the Euro as well.

Analysts believe that the risk aversion has led many to seek refuge in the dollar.

The rupee has also fallen because of weak fundamentals, particularly the rising current account deficit. India's current account deficit is around 4% of GDP and this is funded by capital flows, which have slowed down over the last couple of months.

Analysts expect the rupee to continue its downward momentum as global problems particularly in Greece and Spain increase.

Meanwhile, the Euro fell below 1.25 against the dollar – a new 2 year low.

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