Search the Internet          Tips  Sites: Finance, Investment

Rupee plummets to 48.42/$ after Army chief's comments

The rupee hit a new closing low for the fourth successive day on Friday, with sentiment turning cautious after the Indian army chief's comments sparked off war fears towards the close of trade, dealers said.

Forwards edged up on inter-bank paying as traders grew jittery after army chief General S Padmanabhan told a news conference in New Delhi that the situation on the border with Pakistan, where both countries have massed thousands of troops and military hardware, was grave.

The rupee ended at 48.4125/48.4200 per dollar, just shy of its lifetime low of 48.43 hit on September 17, and weaker than Thursday's 48.3500/3600, the previous closing low.

Traders said the currency could test new lows on Monday.

"The situation can comfortably be described as serious," Padmanabhan told the news conference, adding there was a "warlike situation developing" with Pakistan.

The rupee had weakened in early deals amid steady dollar demand from state-run banks buying on behalf of their customers and the central bank, dealers said.

State-run banks, dominant players in India's currency market, often act on behalf of the Reserve Bank of India, which dealers suspect wants to adjust the rupee downwards to its trade-weighted value in line with falling regional currencies.

It has lost about 0.3 per cent this week and is still overvalued by nearly 1.5 per cent on a trade-weighted basis.

Forwards ended higher on a bout of paying (sell-buy swaps) by banks after the army chief's comments. The six-month forwards ended at 6.30 per cent, higher than Thursday's close of 6.21 per cent.

Tell us what you think of this report