MUMBAI, Nov 24: As the United Front and Congress kept New Delhi in a state of animated suspense, the rupee hit an all-time low of Rs 38.55 against dollar today, before closing at Rs 38.10. The markets followed the currency: Sensex fell by 120 points on the Bombay Stock Exchange BSE.

With the fall of the Government imminent, the rupee began its journey down in the morning when speculators took over the market. The rupee had touched Rs 38.40 in February 1996.

The rupee crashcoupled with the crisis in Delhisoon mirrored in the market. Share prices reeled under sustained Foreign Institutional Investor FII selling pressure on the BSE, National Stock Exchange NSE and other bourses in Delhi, Calcutta and Madras. While Sensex closed at 3403.07 with a sizeable loss of 120.37 points, NSE-50 Index fell by 24.50 points at 981.25.

“Due to falling Indian currency, it makes sense for the FIIs to sell now and enter the markets later when they have to spend less dollar for the same shares,” said a broker. FIIs were the major sellers even in blue chip shares like Hindustan Lever, ITC, Colgate and others.

Even though domestic financial institutions tried to stem the slide, sellers outnumbered buyers and prices dropped on a broad front.On the currency market, after the initial plunge, the rupee staged a comeback to close at Rs 38.10 per dollar following the intervention by the Reserve Bank of India in both spot as well as the forwards markets. The dollar selling by State Bank of India also helped the market to recover. The RBI sold around 75 million in the spot market and 200 million in the forward market to arrest the rupee’s slide.

The RBI sold dollars from Rs 38.32 onwards till the currency recovered to Rs 38.24/. In the forwards market, the apex bank sold May-delivery dollars. Dealers were surprised by the central bank’s late entry in the market as the rupee by then had reached a state of comparative stability after a steep fall in the morning.

The rupee’s fall against the dollar was arrested by profit-taking by some banks, dealers said. Exporters sold dollars from 38.40 levels onwards. The SBI’s entry in the market as a seller also triggered a mild rupee rally.With today’s fall, the rupee was 7.4 per cent below the August-level of Rs 35.60/70.

During this period, some of the Asian currenciesled by the Thai baht and Indonesian rupiah depreciated by 35 per cent. The Singapore dollar is down 10 per cent since July.Finance Minister P Chidambaram hinted that a temporarily weaker rupee was needed to stem capital outflows. Finance Secretary Montek Singh Ahluwalia said there was “no panic situation” on the foreign exchange front. The RBI did not issue any statement during the day.

“I call it a price adjustment because such an adjustment may entail a temporary overshooting of the exchange rate out of line with economic fundamentals and also result in several rounds of domestic price and rate adjustments,” Chidambaram said.The Finance Minister’s comments along with the silence of RBI reinforced market perception that the central bankunder the governorship of Bimal Jalan who took charge on Saturdaywants a weaker rupee. Many dealers said the rupee’s fall appeared to be engineered by the RBI to help adjust it to a sharp fall in other regional currencies. “I personally think a rattled rupee is not good for the country because we have a lot of price-insensitive imports of petroleum, oil amp; lubricants POL items,” said P H Ravikumar, senior vice-president at Industrial Credit and Investment Corporation of India Bank in Mumbai.Analysts said the threat to the Government by Monday night was only one part of the rupee’s troubles.

The real pressure on the currency, they said, came from a belief that India needs to readjust the rupee following the sharp falls in other Asian currencies in the past few months. S P Gupta, director of the Indian Council for Research on International Economic Relations, said there was a growing feeling that the rupee should be nearer Rs 40 against the dollar and “the sooner the better.”