The rupee, which fell today below the 45 mark against the dollar for the first time since November 2006, is expected to fall further in the coming days.

Analysts are predicting that in the next one month or so, the rupee may touch 46 against the US currency, an expectation reflected in the trends in the newly-launched currency futures market. The Indian currency will be at 46.32 after 12 months, data from the NSE currency futures market showed. Premiums hardened in the more widely used forwards market also, indicating that the rupee will weaken.

Oil marketing companies, which have been heavy buyers in the spot market to meet their crude oil requirements, are expected to increase their buying in the near future, resulting in more pressure on the rupee, the treasury head of a large public sector bank predicted.

The rupee opened weak this morning at 44.92 against yesterdays close of 44.83. Shortly after 2 pm it touched 45.18, prompting the Reserve Bank of India (RBI) to intervene through public sector banks. It then closed at 45.13.

While there were fears that a weaker stock market, with the Sensex falling 238 points today, may result in more foreign fund outflows, banks also bought dollars to use an arbitrage opportunity between the Indian market and the rupee derivatives traded abroad. The Sensex is down nearly 30 per cent since reaching a high of 21,200 in January and has prompted foreign institutional investors to be net sellers in the equity markets to the extent of $7.3 billion.
 
In addition, the US greenback strengthened globally with Bloomberg data showing that the dollar advanced against the 16 most active currencies in the past three months.

We expect the rupee to weaken against the US dollar to 46-47 by end-December 2008, but it will likely pull back to 45 by end-March 2009. Be prepared for more aggressive intervention by the RBI in the forex market. Also, the government is likely to ease restrictions on capital inflows in order to check the pace of the rupees depreciation, said Rajeev Malik, economist at Macquarie Group Ltd.

While exports usually welcome depreciation, they are not too happy with the current weakening as they have contracted to sell the dollar when the rupee was between 41 and 42 against the US currency. As a result, they notionally lose the gain.

Companies that have hedged will not be able to get the full advantage of the current depreciation Since the government had said the industry should learn to live with a stronger rupee, nobody wanted to take a risk and played safe by hedging at a higher level. But we never expected the rupee to depreciate so soon and to such a level, said Century Textiles and Industries President R K Dalmia.

Though the depreciation may not augur too well for governments efforts at combating inflation, RBI Governor D Subbarao had made it clear yesterday that the central bank will continue the policy it has adopted so far. His predecessor YV Reddy had last week said that during his term he favoured the use of a mix of available tools ranging from intervention in the market to sterilisation and captial controls to check steep appreciation of the rupee.

Since January the rupee has fallen over 14 per cent against the US dollar. The only time that the Indian currency has depreciated more during a calendar year was in 1991 when the government went for two rounds of devaluation. In the first 10 days of the month, the rupee has fallen 2.4 per cent.