Tracking weak stocks, the rupee today again breached the 56-level before closing a whopping 53 paise down at a more than two-week low of 55.93 versus dollar after RBI did not deliver the widely expected interest rate cut and rating agency Fitch downgraded India's credit outlook.
After opening stronger at 55.33 in sync with global currencies in early trade as Greece poll results eased concerns over a deepening Euro crisis, the rupee strengthened further as it hit the day's high of 55.28 as forex markets factored in a minimum 0.25% rate cut by RBI.
However, with the central bank choosing to focus on inflation over growth and leaving repo rate untouched at 8%, the domestic currency cracked under pressure, mirroring the local stock market trend. The Sensex, after an initial 160-point rally, erased hefty gains and finally closed 244 points down.
Ratings agency Fitch downgrading India's credit outlook to negative also soured the sentiment in the forex market. The rupee touched a low of 56.04 before gaining some ground to close at 55.93, a fall of nearly 1% or 53 paise.
According to Moses Harding, Head - ALCO and Economic & Market Research, IndusInd Bank, the rupee slided today as it had appreciated factoring in the cut in CRR or repo rate during the policy. "However, as that didn't happen, rupee
slipped to previous levels. The tone of RBI which is not pro-growth, has also impacted the currency," he added.
"The credit rating outlook downgrade by Fitch to negative proved disastrous that pushed rupee to above 56 level," said Pramit Brahmbhatt, CEO, Alpari Financial Services (India).
Apart from dollar demand from importers, the rupee did not find any support from Euro, forex dealers said. The euro was almost unchanged at USD 1.26, after gaining as much as 1% to USD 1.27 in early trade today as optimism was curbed over the victory of pro-bailout parties in Greek elections.
Experts also said that with retail inflationmoving marginally to 10.36% in May from 10.26% in April, curbing price rise could a priority for RBI for some more time.
"RBI kept the Repo and CRR rate unchanged giving priority to inflation over the growth. With no support from the Central Bank and the government, we can expect rupee to break 56.52-mark and make a new record low," said Abhishek Goenka, Founder & CEO, India Forex Advisors.
However, N S Venkatesh, Head of Treasury, IDBI Bank, said the positive election results in Greece is likely to support rupee in the near-term, which is showing an appreciating bias.
" A rupee depreciation is akin to rate cuts in terms of easing of monetary conditions through increasing competitiveness. Our belief has been that we should expect rate cuts only on some rupee appreciation," said Arvind Chari,Fund Manager (Ddebt), Quantum Asset Management Co.
The premium for the forward dollar improved further on sustained paying pressure from banks and corporates. The benchmark six-month forward dollar premium payable in November ended slightly higher at 146-148 paise from last Friday's close of 145-147 paise and the far-forward contracts
maturing in May also settled up at 277-279 paise from 273-275
paise previously.The RBI fixed the reference rate for the US dollar at 55.5990 and for euro at 70.6640.
The rupee fell back sharply against the pound sterling to finish at 87.54 from last Weekend's close of 86.18 and also turned negative to close at 70.66 per euro from 69.93. The domestic currency ended lower against the Japanese yen too at 70.73 per 100 yen from 70.32.