The rupee depreciation is due to overall strengthening of the U.S. dollar against local currencies, widening of trade and current account deficits due to higher crude prices, portfolio outflows and risk aversion among portfolio investors, it said. At the Interbank Foreign Exchange (Forex) market, the local currency opened higher at 73.56 a dollar against its previous record low closing of 73.58.
The rupee has continued its downward spiral on back of a consistent rise in crude oil price, which has already breached $85-mark for the first time in four years ahead of the U.S. sanctions on Iran. The rupee then moved in tandem with reports of the RBI opening a dollar swap window for oil refiners that led to a recovery to 72.93 to the dollar, only to settle lower at 73.34 following the denial of the reports.
The Sensex tanked 792.17 points or 2.25 per cent to close at a near 6-month low of 34,376.99, while the Nifty slumped 282.80 points or 2.67 per cent to 10,316.45.
In August, the RBI had hiked its repo rate by 25 basis points to 6.50 per cent citing upside risks to inflation.
The market analysts were expecting a repo rate hike to push the value of rupee, which has weakened more than 13 per cent against the dollar so far this year.
Sentiments were also bearish largely in tandem with a sell-off in global markets as US Treasury yields surged to multi-year highs on robust economic data and comments from the Federal Reserve, sparking fears of accelerating inflation, brokers said.
The rupee on Wednesday reverted to its old ways of sagging against the dollar as rising crude prices pushed the currency below the 73-mark for the first time. Mr. Surendra Hiranandani, Chairman and MD of House of Hiranandani, spoke to Qrius about how sharply the currency and equity market reacted as soon as another rate hike was anticipated to curb inflationary pressures.
Ever since the repo rate was hiked by 50 basis points (0.50%) in the last few policy announcements, the lending rates too have gradually gone up.
"Most of the Asian and emerging currencies are calmer in past one month".
Foreign portfolio investors (FPIs) bought shares worth a net of Rs 1,550 crore, while domestic institutional investors (DIIs) made purchases to the tune of Rs 1,402 crore Wednesday.
If the RBI raises the interest rate on Friday, it would be third in a row.
The Reserve Bank Friday unexpectedly maintained status quo on the benchmark interest rate but warned that volatile and rising oil prices, and tightening of global financial conditions pose substantial risks to the growth and inflation. In the Euro area, inflation pressures have been sustained by elevated crude prices, the committee noted.