Rupee breaches 56 mark; drops 33 paise

The rupee breached the 56 mark today, dropping 33 paise to the dollar. It was trading at 55.99 to the US greenback at 9.45 am IST.

Rising prices of crude has posed a fresh worry for the currency. Brent crude has hit a new 3-month high of more than $116 a barrel. India imports bulk of its crude requirements and rising crude prices increases the demand for the dollar and puts pressure on the rupee.

Dealers expect the rupee to fall even further given the weakening economic fundamentals. India's current account deficit has been rising steadily putting pressure on the rupee. Earlier this year, the rupee had plunged to a record low of 57.31 and analysts expect it to continue to drop given the government's inability to hike diesel prices.

A Reuters report today earlier stated that one can expect a popular backlash if the government raises diesel prices to halt the subsidy drain on its finances - not only from the millions of poor who need cheap fuel but from increasing numbers of the well-off and businesses who don't.

Clearly, the currency is likely to witness a downslide and any appreciation of the Indian rupee in the short to medium term is ruled out.

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