RTTN:Rupee Drops Below 56.0 Vs. Dollar As Fitch Cuts India's Outlook To Negative
(RTTNews) - The Indian rupee resumed its early morning downtrend against its US counterpart at the end of Monday's domestic deals as Fitch Ratings downgraded India's rating outlook to Negative from Stable.
The rating agency slashed India's rating outlook, citing heightened risks of potential deterioration in medium to long-term growth and limited progress on fiscal consolidation.
However, the sovereign rating was affirmed at 'BBB-', reflecting India's diversified economy and its high domestic savings reduce reliance on foreign investors for private investment and fiscal funding.
The agency said the outlook revision indicates heightened risks that medium- to long-term growth potential will gradually deteriorate if further structural reforms are not hastened.
The outlook downgrade came a week after the rating agency Standard & Poor's warned that India may become the first nation among the BRIC to lose its investment grade.
Meanwhile the Reserve Bank of India kept the repo rate, the rate at which the central bank lends to banks, at 8.00 percent and the reverse repo was retained at 7.00 percent. The reverse repo rate is the rate at which the central bank borrows from banks.
Moreover, the cash reserve ratio, or CRR, was held at 4.75 percent. The RBI has reduced the amount lenders need to set aside as reserves in January and March this year.
India's annual inflation rate based on the general consumer price index accelerated in May, preliminary data released by the Central Statistics Office showed today.
The consumer price index increased 10.36 percent annually in May, after rising 10.26 percent in April. The inflation rate for rural areas eased to 9.57 percent in May from 9.67 percent in the previous month, while the rate for urban areas increased to 11.52 percent from 11.10 percent.
The rupee, which was under pressure following the RBI decision to retain the interest rate contrary to market expectations of a rate cut, slipped past the key 56.0 level after a gap of 6-days.
The next support level for the Indian currency to watch is at 56.09 per dollar, the level that hits on June 12 and a move beyond this mark could set its weakest in the month.
Further downside pressure could set the Indian rupee falling below its all-time low of 56.51 that hit on late May. Odds are high for the rupee to drop below the 58.0 level in the near future.
