New Delhi, May 22
The rupee hit a record low to the dollar for the fifth straight session on Tuesday, weighed down by large dollar demand from oil firms and weak global risk sentiment, especially after Fitch downgraded Japan's ratings.

The latest fall came even after the Reserve Bank of India announced measures on Monday to target arbitrage and speculation in futures and options markets, with traders saying this market segment was too small to have a big impact.

The rupee fell to an all-time low of 55.47 per dollar, before closing at 55.39/40, as per SBI closing rates, compared to its Monday close of 55.03/04, dragging with it the stock markets that fell Tuesday after three days of gains.

The rupee’s freefall in the last two months has been unnerving, though several global factors are at play leading to risk aversion and the US dollar emerging stronger against several currencies.

The BSE Sensex, which had gained 153 points in the past three sessions, fell by 156.85 points, or 0.97%, to close 16,026.41. While the 30-share index climbed to the day's high of 16,366.72 in early trade tracking strong global trends, there was nervousness after the rupee dropped below the 55-level.

Anindya Banerjee, senior manager, currency derivatives research desk, Kotak Securities, said the RBI’s fresh round of measures for banks was more to contain arbitrage flows into the exchange traded market rather than an effort to contain price pressure.

He said the rupee came under pressure today when rating agency Fitch downgraded the Japan’ sovereign rating by one notch. A sharp fall in the Indian stocks, with the NSE Nifty closing 0.93% lower at 4,860, also supported the weak bias in the Indian currency, he added.

“Looking forward, over the near-term, we expect the rupee to remain volatile as further sovereign measures can be anticipated but could be absorbed by a negative stream of news flow from the eurozone”, Banerjee said.

Finance Minister Pranab Mukherjee in a reply submitted in Parliament said the government is taking a number of steps to arrest the decline of the rupee.

A number of steps have been taken to augment the supply of foreign exchange to stem rupee decline, he said adding measures have also been taken to increase direct foreign investment for infrastructural development.

He said the steps included liberalization of external commercial borrowings (ECB) policy and portfolio investment norms besides steps to improve access to corporate bond market through infrastructure debt funds.

The central bank has also taken initiatives to curb speculation in the foreign exchange market, Mukherjee said. This included a hike in NRI deposit interest rates, easing availability of export credit and a stipulation that 50% of balances in an exchange earner's foreign currency account be converted into rupee balances, he added.

"Policy makers will need to take dramatic action soon if they want to stabilize the INR," Dariusz Kowalczyk, a strategist at Credit Agricole, wrote in a report. He added he the rupee could touch 57 to the dollar ahead of the Greek elections in mid-June and cited "extreme" pessimism among the clients in India he had recently visited.

In the currency futures market, the most-traded near-month dollar-rupee contracts on the National Stock Exchange, the MCX-SX and the United Stock Exchange all ended around 55.49 on a total volume of $6.06 billion. 

Paris, May 22
India's economic growth is likely to rise to more than 7.5 percent in calendar year 2013 but continued government policy uncertainty could erode the country's longer-term growth prospects, the OECD said on Tuesday.

A cyclical upturn in investment, stronger external demand and the effects of recent monetary easing will boost growth, the report said, although it warned that high inflation would dampen the investment climate.

The prediction of higher growth in the Organization for Economic Cooperation and Development's outlook report should cheer Prime Minister Manmohan Singh's government — which has faced an avalanche of criticism over how it has run Asia's third-largest economy and its scant progress making key reforms.

The upbeat OECD forecast stood in stark contrast to the pessimistic view offered on Monday by Morgan Stanley, which cut its growth forecasts for India, citing a high budget deficit and slowing private investment. It said it now expected the economy to grow by 6.8%, instead of 7.5%, in 2013.

Standard & Poor's rating agency cut its outlook for India's credit rating to negative from stable in April, reflecting worries about high deficits and political paralysis that has stalled progress on major economic reforms.

India's economic growth slowed to 6.1 percent in the three months to December, the weakest annual pace in almost three years, while the rupee slumped to record lows against the dollar on Tuesday. "A moderate cyclical pickup in investment is projected in the near term," OECD said.

POLICY UNCERTAINTY: India has had rapid economic growth after opening up its economy in 1991. But investors fret that Singh's government is now squandering a chance to tap the country's potential.

The current account deficit is the highest since 1980. Reforms such as opening India's supermarket sector to foreign chains like Wal-Mart stuttered as the government failed to convince powerful coalition allies. Inflation is the highest among the so-called BRICS group of major developing nations. — Reuters

Tokyo, May 22
Fitch cut Japan's sovereign credit status on Tuesday to the lowest level among global ratings agencies as a political stalemate dims the chance that the country can curb its snowballing debt.

Fitch Ratings cut Japan's long-term foreign currency rating by two levels from AA to A plus, the fifth highest investment grade. It cut the more important local currency rating by one notch from AA minus to A plus. Both were given a negative outlook.

Fitch warned further downgrades were possible unless the government takes new fiscal policy measures to stabilise public finances and its ratio of debt to gross domestic product.

"The downgrades and negative outlooks reflect growing risks for Japan's sovereign credit profile as a result of high and rising public debt ratios," Andrew Colquhoun, head of Asia-Pacific sovereigns at Fitch said in a statement.

"The country's fiscal consolidation plan looks leisurely, relative even to other fiscally challenged high-income countries, and implementation is subject to political risk."

The downgrade could serve as a chilling reminder to highly indebted countries in Europe that urgent action is needed to trim public debt and prevent concerns about sovereign debt from weighing further on the global economy.

Several eurozone countries have been hit with multiple downgrades as the region struggles to deal with its mounting debt crisis.

The United States is expected to reach a $16.4 trillion government debt ceiling after November presidential elections, laying the ground for another protracted political battle over how to cut the budget, similar to a bitter debate that rattled financial markets last year.

After Japan's ratings cut, the dollar rose against the yen to a session high of 79.85 yen. But analysts said the downgrade is unlikely to have a lasting impact on markets because Japanese government bonds are mostly held by domestic investors.

Fitch's A plus local currency rating for Japan is the one most closely followed by investors because the government's debt is largely funded by domestic investors. — Reuters

New Delhi, May 22
The government said Tuesday it planned to provide direct subsidy to beneficiaries of kerosene oil and a pilot project in this regard in Alwar district of Rajasthan was yielding good results.

"Direct subsidy on kerosene is planned in future ... We have to move towards it. It will be done using UID cards... We are benefiting from the pilot project," minister of state for petroleum & natural gas R.P.N. Singh said in the Rajya Sabha.

He said the government had provided subsidy of Rs 1,38,541 crore during 2011-12 and a subsidy burden of Rs 1,89,605 crore on petroleum products was due during the current year.

"The government is bearing a subsidy of Rs 503 for an LPG (liquefied natural gas) cylinder, a subsidy of Rs 32 on per litre of kerosene, while the loss on diesel suffered by oil marketing companies was Rs 13.64 per litre," he said during question hour.

He suggested the subsidy should be reduced and urged members to take the lead in doing away with their LPG quotas. "A proposal should come from all MPs that they will not take subsidy on their LPG cylinder. This would show the way so that the message goes that the subsidy is meant for the poor," he said, adding that the rich were also taking subsidy which was meant only for the poor and lower middle class.

Singh said a pilot project providing direct subsidy to poor and lower middle class beneficiaries was successfully under implementation in an area of Alwar district, Rajasthan, and the government was benefiting. — PTI