Indian Rupee plunged at historical lowest

Indian Rupee plunged to its historic low mark of 54.56 against the U.S. dollar on 16 May 2012. At the Interbank Foreign Exchange market, the rupee opened sharply lower at 54.06 and plunged to all time low of 54.56, surpassing the previous all-time low of 54.30 recorded in December 2011. It finally closed at 54.50.

A falling rupee will adversely affect the economy by raising the cost of imports, which in turn will hike the price of important items in the economy. The falling rupee is largely attributed to the factors like swelling trade deficit, which widened to over 10.9 per cent of gross domestic product in the fiscal years 2011-12, and grim economic outlook.

Rupee was not the only currency which fell down amidst the global pressure but many of the major currencies witnessed the same fate as the dollar was viewed by the investors as the safest bet.  While Euro hit its four-month low mark, dollar geared up for its highest level since September 2010.

C Rangrajan, the prime minister's economic advisory council chairman advocated the use of India's foreign exchange reserves to keep in check the consistent depreciation of the rupee against the dollar. India has a total of nearly 290 billion dollar as its foreign exchange reserves.