Five reasons why the rupee hit record low against the dollar

1. Dollar strength : The dollar index has
been rising on signs of growing
economic momentum and talk of an
early end to the Fed's stimulus effort.
Thio Chin Loo, senior currency strategist
at BNP Paribas told NDTV that it's a
general dollar rebound in markets this
morning in the back of rising U.S. yields
on Friday as a result of slightly better
than expect payroll data in the U.S. The
dollar is high across the board including
the rupee, she added.
2. Widening trade deficit: Rising deficit
is bad for India as it exposes the
economy to the risk of sudden stop and
reversal of capital flows. In case of an
event shock, for example if the U.S. Fed
withdraws its bond buying programme,
there might be sudden outward flow of
money, leaving India scrambling for
dollars. The slowdown in the Indian
economy has made the current situation
even more volatile because the
government is unable to generate heavy
capital inflow. India's current account
deficit was equivalent to a record 6.7
per cent of gross domestic product in
December.
3. Weakness in domestic equities:
Foreign institutional investors have been
selling index futures in the last week.
This is a hedging move as FIIs expect
stocks (cash segment) to fall in the near
term, traders said. FIIs have been a key
support for markets (and the rupee)
after buying over $15.38 billion (R
90,000 crore) worth of shares this year
as of last week.
4. Rising import bill : Oil and gold
imports account for 35 per cent and 11
per cent of India's trade bill
respectively. Traders say there has been
continuous demand for the greenback
from oil importers, the biggest buyers of
dollars in the domestic currency market,
pushing the rupee lower. Similarly,
falling gold prices have offset the
government's and the central bank's
moves to reduce gold imports, which
increases current account deficit and
weighs on the currency.
5. Weak economic fundamentals: Moses
Harding of IndusInd Bank told NDTV
that weak economy and no signs of a
quick fix solution are weighing on the
rupee. The UPA government is unlikely
to deliver far reaching reforms to
generate heavy capital inflows, as it did
last September to stave off the loss of
India's investment grade credit rating,
experts say.