The Indian rupee hit a new record low against
the dollar on Wednesday while the benchmark Sensex stock index fell
below the 18,000 level.
The partially convertible rupee, touched a low of 64.57 against the dollar after hitting 64.12 per dollar on Tuesday.
The currency has depreciated by more than 16 per cent since the beginning of April, owing to the growing strength of the dollar and a constrained supply with increasing demand for US currency from Indian importers.
The rupee's free-fall continued after the Reserve Bank of India Tuesday announced it would inject 80 billion rupees (1.3 billion dollars) in the banking system by buying long-term government bonds.
The move came after the central bank's tightening measures failed to stabilize the rupee and sent interest rates surging.
The 30-share Sensex index on the Bombay Stock Exchange lost 1.86 per cent, or 340.13 points and closed at 17,905.91.
The broader 50-share S&P CNX Nifty on the National Stock Exchange also lost 98.90 points, or 1.83 per cent, to close at 5,302.55.
Economists from Deutsche Bank said the Indian currency could crash to 70 against the US dollar within about a month, but some rebound is expected by the end of the year.
"We continue to believe that fundamentally the rupee is undervalued and has overshot its equilibrium level substantially, but as numerous episodes of past currency crises have amply demonstrated, under a scenario of deep pessimism, currencies can overshoot substantially and remain so for a long time," Deutsche Bank economists said in the report.
"India we fear, is entering such a zone."
Stock analysts said the Indian stocks would fall drastically if the rupee continued to remain weak amid the large dollar demands from banks and importers.
"It's total mayhem in markets," Hemant Kale of Zest Capital told NDTV. "If 5,250 (on the National Stock Exchange) breaks down, the next support will come at 5,000 levels."
He said there would be a "catastrophic fall" in markets if the rupee stayed above 64.
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