The Indian rupee fell below 64.13 per US dollar to hit a record low as heavy dollar-buying from large state-run banks, along with demand from custodian banks, hurt the local currency Wednesday.
The rupee was trading at 64.30/40 per US dollar after hitting a record 64.40 low, and down 1.7 percent on the day. It could crash to 70 against the US dollar in a month or so, according to Deutsche Bank.
"We continue to believe that fundamentally the rupee is undervalued and has overshot its equilibrium level substantially, but as numerous episodes of past currency crises have amply demonstrated, under a scenario of deep pessimism, currencies can overshoot substantially and remain so for a long time," economists at Deutsche Bank wrote in the report.
"India, we fear, is entering such a zone".
At the end of June, the rupee was still trading around 60-per-US dollar levels. Economists predicted that the rupee would stabilize in the mid-60s, but expected it would take months -- not days -- to reach those levels.
On Tuesday, the Reserve Bank said it would buy long-dated government bonds through an open-market operation August 23. From there, the bank would decide the amount and frequency of further intervention.
Sanjeev Sanyal, global strategist for Deutsche Bank AG, said that the Reserve Bank should stabilize the rupee and prevent it from falling further.
"The danger is you get back into a rupee spiral, with inflation rising because of rupee fall and then rupee weakening further because of the inflation," Sanyal added.
