US credit rating downgrade: Rupee drops to 6-week low

The rupee fell to its lowest level in six weeks after the central bank said downside risks to growth may have increased following Standard & Poor's downgrade of the US credit rating.

The currency and the Bombay Stock Exchange's Sensitive Index dropped for the fifth day after S&P cut its longterm debt rating for the world's largest economy in an announcement after the markets closed on August 5. India has sufficient liquid reserves to meet demand for foreign exchange even in the event of significant capital outflows, the Reserve Bank of India said in a statement on Monday.

"The downgrade has led to a concern about foreign inflows and the market is currently taking stock of what could happen going ahead," said Sudarshan Bhatt, chief currency trader at Mumbai-based Corporation Bank. The rupee declined 0.5% to 44.98 per dollar in Mumbai.

It touched 45.0660 earlier, the weakest level since June 27. Indian stocks slumped 1.8% on Monday. Earlier, the gauge slid 3.2%, extending losses from a November 5 peak to 20%. Offshore forwards indicate the rupee will trade at 45.51 to the dollar in three months, compared with expectations for a rate of 45.19 on August 5. Forwards are agreements to buy or sell assets at a set price and date. Nondeliverable contracts are settled in dollars.