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The rupee, which opened on a positive note at 74.60, gained further momentum and touched a high of 74.35 against the US dollar.
Stock market indexes crashed 13% as they tripped circuit breakers in the morning. The rupee slid 1.2% after retreating to an all-time low of 76.1550.
In the last one month, the rupee has depreciated by nearly 5 per cent against the dollar but this is unlikely to cause any challenge on the external sector front.
RBI could deploy some of the forex stockpile to steady the rupee, which has tumbled more than 2% over the past week as more coronavirus cases are detected.
The best cartoons of the day, chosen by the editors at ThePrint.
The worst of India’s economic slowdown has passed and the authorities are unlikely to use currency depreciation as a measure to revive growth.
The Rupee has risen about 1% in the past month after falling by as much 1.2% in October and November.
Indian authorities are concerned a surge in rupee trading overseas threatens the stability of the currency, especially in times of stress.
Even a record $24 billion payout by the RBI failed to excite markets as foreign funds pulled $2.3 billion from shares in August, the biggest outflow since October.
In its annual report, the RBI said currency in circulation soared to Rs 21.10 lakh crore as of March 2019, with the Rs 500 bill accounting for over 51% of the value of currency.