Five reasons why the rupee is sliding against the dollar

1. Dollar strength: The dollar index is up nearly 5 per cent this year on signs of growing economic momentum and talk of an early end to the Fed's stimulus effort. Most global currencies have weakened against the dollar including India's rupee.

2. Weakness in domestic equities: The BSE Sensex has fallen nearly 4 per cent over the last week. The selloff has been triggered by foreign institutional investors, who have sold about Rs. 3,900 crore worth of index futures in the last four trading sessions. This is a hedging move as FIIs expect stocks (cash segment) to fall in the near term, traders said. FIIs have been a key support for markets (and the rupee) after buying a net $15.38 billion (Rs. 90,000 crore) worth of shares this year as of Wednesday's close.

3. Demand from oil importers: India has to import crude oil to meet its domestic requirement. Traders say there has been continuous demand for the greenback from oil importers, the biggest buyers of dollars in the domestic currency market, pushing the rupee lower. Oil and gold imports account for 35 per cent and 11 per cent of India's trade bill respectively.

4. Gold imports: Gold imports hit 162 tonnes in May, twice the monthly average of 2011 when they reached a record. Gold is the second most expensive import for the country after crude oil. Falling gold prices have offset the government's and the central bank's moves to reduce gold imports, which increase current account deficit and weighs on the currency. India's current account deficit was equivalent to a record 6.7 per cent of gross domestic product in December.

5. Weak economic fundamentals: Moses Harding of IndusInd Bank told NDTV that weak economy and no signs of a quick fix solution are weighing on the rupee. The UPA government is unlikely to deliver far reaching reforms to generate heavy capital inflows, as it did last September to stave off the loss of India's investment grade credit rating, experts say.

(NDTV & Reuters)