The rupee extended its steep sell-off against the dollar on Friday morning as eurozone debt fears intensified after rating agencies downgraded Greece and Spanish banks. Increased capital outflows and strong dollar demand from importers also dragged the rupee to a new record low of 54.87.
Fitch Ratings downgraded Greece's long-term debt ratings to CCC from B-, citing the heightened risk the debt-ridden nation's potential exit from the eurozone. Fitch has also downgraded the Short-term foreign currency rating to 'C' from 'B'. At the same time, the agency has revised the Country Ceiling to 'B-'.
At the same time, Moody's cut ratings of Spanish banks yesterday, raising doubts about the monetary strength of the European banking system. The reductions followed the rating agency's downgrade of 26 Italian banks last week.
Downbeat data from the U.S. overnight also reduced risk-appetite, with the Philadelphia Federal Reserve showing an unexpected contraction in regional manufacturing activity in May and the Conference Board reporting a surprise drop of its leading economic indicators index in April.
Global growth worries sent stocks lower and the benchmark 30-share Sensex is currently trading down 170 points or 1.06 percent at 15,899, while the broader Nifty index is down 53 points or 1.08 percent at 4,817.
Although the the Reserve Bank of India took some measures to curb the rupee's slide in the recent past, it failed to check its free fall.
Last week, the RBI urged all foreign exchange earners, including exporters, to convert 50 percent of their foreign exchange holdings into rupee in an attempt to curb the recent plunge in the currency.
The rupee is now nearing the 55/dollar-mark and some analysts foresee a fall below 58.0 per dollar. Traders expect some RBI interventions if the rupee reach the key 55-mark.
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