MUMBAI: The rupee fell on Friday to end the week down 2% against the dollar, its worst performance in nearly two months, as a grim global economic outlook triggered concerns of capital outflows from local shares.
The partially convertible rupee ended at 49.72/74 per dollar on Friday, 0.2% weaker than Thursday's close of 49.62/63. It was the unit's poorest week since the end of December.
"Customer selling around 49.90 per dollar levels capped the dollar/rupee's fall but the medium term outlook for the rupee continues to be bearish and it is only a matter of time before it tests 50.50," said a senior dealer at a private bank.
Volumes were lower due to a strike by central bank employees and ahead of a market holiday on Monday, with most traders in state-run banks preferring to stay on the sidelines rather than take aggressive positions.
Shares fell 2.2% on Friday to their lowest close in a month, joining a global market rout. Foreign funds have sold Indian shares worth a net $1.35 billion this year after withdrawing more than $13 billion in 2008.
The outflows have piled pressure on the rupee, which has dropped 2.1% this year after falling 19.1% in 2008.
Some private economists expect the rupee to decline to a lifetime low of 54 by the end of 2009 as foreign direct investment and remittances fall sharply.
"While that may be overly pessimistic, the fall in FDI should certainly be spectacular, for global reasons if not the general deterioration in the security/political/corporate governance environment in India," Richard Yetsenga, a forex strategist at HSBC said in a recent note.
The dollar and the yen rose on Friday as growing global economic and banking sector woes drove investors into currencies seen as safe havens, while grim euro zone data added to negative sentiment on the euro.
One-month offshore non-deliverable forward contracts were quoting at 50.10/17 to a dollar, weaker than the onshore spot rate, indicating a bearish near-term outlook. But traders said the central bank may sell dollars aggressively above 50 per dollar to prevent a sharp slide.
Data showed foreign exchange reserves for the week ended February 13 declined to $249.692 billion from $251.532 billion a week earlier.
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