Rupee at a 2.5 year low

The rupee dropped to a two-and-half year low of 51.34 against the US dollar on Friday after the Bombay Stock Exchange Sensex closed 90 points down at 16371 after pulling back from the day’s low of 16165. Both the rupee andsensex witnessed their worst weeks in this quarter. The key driver of the markets was risk aversion by foreign institutional investors over fears that the European crisis could worsen. In order to remain liquid should the crisis worsen, international investors have been pulling their money out of emerging markets and investing them in US treasuries. As a result of this all Asian currencies had one of their worst weeks in recent months. The BSE sensex has fallen by nearly 5% this week, while the rupee has dropped by 0.8%. Deals in the overseas non-deliverable forward market (traders which are settled in foreign currency, but bets are on the rupee)show that investors expect the rupee to weaken to beyond 52 in three months.