The Indian rupee tumbled to an all-time low against the US dollar yesterday, fuelling the concerns surrounding India's faltering economy.
The rupee fell to 58 to the dollar in trading yesterday, beyond the last record of 57.37 touched in June last year.
"The main reason causing the rupee to fall is the immense strength of the dollar index," said Adeeb Ahamed, the chief executive of Lulu International Exchange.
India is grappling with slower economic growth, high inflation, and gaping trade and fiscal deficits. The country is heavily reliant on imports, particularly of oil and gold, so a decline in the value of the rupee makes these purchases more costly.
"A country with high exports will be happier with a depreciating currency," said Mr Ahamed. "India, on the other hand, does not enjoy this luxury, mainly because of increasing demand for oil, which constitutes a major portion of its import basket."
The softness of the currency is however cheered by Indian expatriates in the UAE. The dirham is pegged to the dollar, which means that Indians sending currency home receive more rupees for each dirham.
"It brings a smile to all the Indian expatriates," said Mr Ahamed.
Yesterday the dirham was fetching 15.8 rupees.
P Chidambaram, India's finance minister, last week said that the decline in the Indian rupee was not a matter of concern because capital inflows were strong. "I think the rupee will stabilise and find its correct level," he said, speaking at the Indian Banks' Association annual meeting in Mumbai.
"The weakness right now is not related to domestic factors in India," said Naveen Mathur, the associate director, commodities and currencies, at Angel Broking. "If you see the capital markets have done pretty well in the last one to two months. When the money flows into the capital markets, the rupee should appreciate.
But the rupee is actually not appreciating because of the strength of the dollar index. Nothing new has happened [in India] - things are kind of stable, so domestic factors politically are not leading the rupee weakness in the current space."
As well as putting pressure on imports, the currency's fall comes at a time when India is trying to attract more foreign investment and its weakness hurts this cause, Mr Mathur added.