The rupee has fallen over 3 per cent since China on August 11 depreciated its yuan, sparking fears of a global currency war.
The rupee ended at 65.82/dollar on Friday after hitting a low of 65.92.
Reserve Bank of India Governor Raghuran Rajan has warned of risks of risks from devaluation China's yuan. "If it is part of a process of getting competitive advantage through longer term depreciation it has to be worrisome across the world, partly because you could have tit-for-tat actions," he said on Thursday.
Apart from yuan's depreciation, Mr Narayanan of DBS Bank attributed rupee's fall to emerging market selloff amid global growth concerns.
"What started off with yuan devaluation has become bigger issue. We have seen the ongoing China slowdown assuming bigger proportions," he added.
Worries of a deepening China economic slowdown intensified on Friday after a private survey showed the factory sector shrank at its fastest rate in almost 6-1/2-years in August, hammering global stocks and commodity prices.
The recently released minutes from US Federal Reserve Fed minutes showed officials noting that weak global economy posed too big a risk to commit to a rate "liftoff." Moody's has recently cut India's FY16 growth estimate to 7 per cent from 7.5 per cent.
However, Mr Narayanan does not fear a run on the rupee as it happened in 2013, when rupee hit an all-time low of 68.85. India's deficits have narrowed significantly since 2013 and the Reserve Bank of India has significant ammunition in the form of foreign reserves, he added. The Reserve Bank of India has foreign exchange reserves worth nearly $350 billion.
Mr Narayanan said the RBI may be okay with some weakness in rupee because the fall in the currencies in other Asian markets could impact India's exports.
Mr Narayanan also attributed commercial reasons for the fall in rupee. The dollar demand has gone up because importers want to cover their exposure in view of the weakening of the rupee while exporters might want to hold to their dollars on expectations of a further weakening of the currency, he added.
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