Re plunges to all-time low of 56.57

Limited Fed Action Disappoints Mkts | Oil Prices Dip To 18-Mth Low Of $91 Mumbai: The rupee fell to a new lifetime low of 56.57 on Thursday as world markets were disappointed with the Federal Reserve's decision not to come out with a fresh round of monetary easing. The currency, however, recovered to close at 55.31—a reduction of 16 paise from its previous close following dollar sales by the Reserve Bank of India and a recovery in the stock market.      Curiously the rupee weakened even as international crude market saw oil prices fall to an 18-month low of around $91 per barrel. For the government which had budgeted for oil at $110 a barrel, the sharp fall in crude prices has more than offset the impact of a weaker rupee on its import bill. Besides the fall in oil prices, imports have decelerated sharply because of the spike in the value of the dollar. But the rupee continued to remain under pressure as the local currency is largely driven by capital account flows—dollars that come into the country as a result of investment by foreign institutional investors and foreign borrowings by Indian companies. Since April this year international markets have been witnessing a risk-off ' situation—one where investors chose to park their funds in low risk securities even if that means sacrificing returns.      "The rupee weakness is basically on the back of issues such as fiscal slippage, governance and actions by rating agencies and not so much to do with trade. We are not seeing much of capital inflows whether it is remittances, FII, FDI or debt," said Ashutosh Raina, head of forex dealing at HDFC Bank. According to Raina, with the rupee having touched a new low, the next resistance level should be around 56.80. "Once that is breached we will have to see where it goes from there. On Thursday, the main cause for rupee weakness was global disappointment with the US Federal Reserve not coming out with a fresh round of quantitative easing in the meeting on Wednesday. The Fed worsened sentiment by cutting forecasts for growth.      Bankers say that although RBI sold dollars on Thursday, it is not intervening significantly because it sees the rupee weakening as a natural process and not a result of any speculative attack. RBI has already banned banks from holding trading positions in the forex market. This means that demand for dollars is largely from importers. It is possible for merchants to build up positions by delaying or advancing their payments, but given the uncertainty, no one is making big bets.      Reserve Bank of India governor D Subbarao said on Monday that an economy will see its currency appreciate if it grows faster than its trading partners. India's main trading partners are the Middle East (largely a re-export centre), China and the United States. The rupee has weakened by over 20% against the US currency since August 6 when the US was downgraded by international rating agency Standard & Poor's.