What led rupee to breach 60 vs dollar?

The rupee breached the psychological 60 level versus the dollar and the question uppermost in everybody's mind is what triggered the fall when equities or other currencies were not really falling? Latha Venkatesh of CNBC-TV18 says continuous dollar demand was the root cause of the fall.

Bankers had confirmed that demand was coming from nationalized banks and custodian banks throughout the day. While custodian banks normally operate for foreign institutional investors (FIIs), public Sector banks were probably buying for importers of all kinds, including crude. But after 4 PM, it appears that PSU banks were not supplying dollars and the extent of RBI's support was not known.

Also read: Rupee in uncharted territory post 60/USD: Axis Bank

In the next 30 minutes, however, the rupee was being traded at as low as 60.60 to a dollar. Experts are unsure where the fall will end because the RBI at the moment has chosen not to supply the greenback.

KV Kamath, Chairman, ICICI Bank believes that the government cannot allow the rupee to hover above 60 against the dollar as it will have drastic implications for the economy. He also stressed that the rupee cannot be stabilised simply by market interventions and there is a need for more tools to arrest the rupee free fall.

"External commercial borrowing (ECB) opening up was in a calibrated way, but we probably were relaxed looking at the current account deficit (CAD). But if you have got other ways in which you plug CAD then a whole lot of tools will open up and you tighten them and you could see rupee tightening dramatically, maybe they don’t want a dramatic tightening of the rupee," Kamath said.