MUMBAI: The Indian rupee on Tuesday hit a record low against the dollar, as fears about eurozone debt and the global economy as well as falling local stock markets provoked further selling of the currency.
The rupee plunged to 52.73 against the greenback on the foreign exchange markets, causing further problems for India's central bank as it tries to rein in near double-digit inflation.
The weakening rupee is expected to fuel domestic inflation because oil imports priced in dollars will become more expensive, translating into higher prices for local consumers and businesses.
"It (the weakening rupee) is disruptive, there is no question," the deputy governor of the Reserve Bank of India (RBI), Subir Gokarn, told reporters in the financial capital, Mumbai.
"There will be an impact on our import bill, particular for energy. It's having an impact on companies and it is a problem."
Gokarn, forex dealers and analysts said however that the fall matched global trends, as investors flee riskier emerging market and eurozone assets, pushing up demand for the dollar, which is seen as a safe haven in times of crisis.
The rupee is the worst performing of Asia's 10 most-traded currencies, having fallen around 14 percent against the dollar since the start of 2011, while Indian shares are faring the worst among their regional peers.
The leading 30-share Sensex index has lost 22 percent this year.
Dealers added that the rupee's fall had been exacerbated by the finance ministry's comments on Monday that the RBI had only a "limited" ability to arrest the partially convertible currency's slide.
Media reports and analysts said the bank had intervened for the first time in more than two months to try to quell the decline of the rupee, which has tumbled by about four percent against the dollar in the past six trading days.
"There's no official confirmation but people think that's the case," said economist Siddartha Sanyal, from Barclays Capital.
"At this moment, the dynamics seem to be pretty much against all emerging market currencies and that's not really helping the rupee," he told AFP.
The RBI's Gokarn said the bank had no target level for the currency, although he admitted the weakening rupee could have an immediate impact on inflation.
"Any action we take now, if any, has to take into account the fact that these actions might have consequences a little further down the road," he added.
"So we've got to balance out actions now with risks or potential increase in vulnerability later on."
Finance Minister Pranab Mukherjee said that "RBI intervention (in the forex market) will not help", as the government warned against over-reactions.
Falls in the domestic share market have also weighed on the rupee, with the blue-chip Sensex index of leading shares down 2.6 percent to 15,946.10 points on Monday.
The index closed up 0.75 percent on Tuesday, with US-exposed IT firms and other exporters among the leading gainers. The weak rupee makes their services cheaper for overseas clients.
Some car makers, however, said they were considering price rises because of the increase in cost of components.
India is a net importer, with one-third of foreign goods made up of crude oil that is used to power the energy-hungry nation.
Thirteen interest rate hikes since March 2010 have slowed India's fast-paced economic growth but made little impact on rising prices.
Investors are also concerned about widespread corruption and a perceived lack of movement on key institutional reforms.
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