Rupee Could Fall to 70 to US Dollar, says Deutsche Bank

Despite the Indian rupee having fallen to a record low of 64 to the dollar, the currency could drop further and even reach to 70 in a month or so, Deutsche Bank said in a report on Wednesday.

The rupee has dropped by around 17 percent since May 22 when the U.S. Federal Reserve implied it might start curbing its huge bond buying program, causing a return of dollars from emerging markets to the United States.

"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".

Consequently, the rupee has been the worst performing currency in Asia and among the worst performing currencies in emerging markets this year.

The currency's fall has made imports of rough diamonds, which have seen prices rise on world markets, even more expensive.

With polished prices largely standing still, and even declining, the rupee's decline has led to a sharp decline in rough diamond purchases since they cannot be profitably manufactured, say diamantaires in Mumbai.

The diamond and jewelry industry also fears the impact on domestic sales of diamond-set jewelry.