Mumbai: The rupee depreciated on Tuesday following losses in other Asian currencies and a downgrade in India’s investment grade outlook by rating agency Standard and Poor’s.
“The rupee weakened pretty fast after the S&P outlook cut was announced. It should have a negative impact in the short term and may force the Reserve Bank of India (RBI) to cut rates to boost growth in the economy,” the chief dealer with a state-run bank said.
S&P cut its outlook on India’s long-term sovereign credit rating to negative from stable, citing worsening government finances, which could raise firms’ overseas borrowing costs and weaken the rupee.
The partially convertible rupee closed at Rs49.87/88 per dollar, off a high of Rs49.79 and 0.3% weaker than its Friday’s close of Rs49.72/74.
Dollar sales by exporters and state-run banks and a partial recovery in the stock market also helped limit losses in the rupee.
“There was some selling coming in around Rs49.95 levels from exporters and also from state-run banks,” a senior dealer at a foreign bank said.
Domestic shares recouped most of their losses from a near three-month low hit early on Tuesday, after the government announced cuts in factory gate duties and service taxes.
Foreign investors have sold about $1.4 billion worth of shares this year, after a more than $13 billion sell-off in 2008. The rupee is down 2.3% in 2009, after falling 19.1% last year.
Dealers said weaker regional currencies also weighed on sentiment. Asian currencies fell as concerns about the health of the global financial system and growing economic gloom haunted investors.