The partially convertible rupee closed at 62.41 per dollar compared with 62.39 on Wednesday. It fell to an intra-day low of 62.73, its lowest since September 30. S&P said it may cut India's sovereign rating to below investment grade should the next government fail to provide a credible plan to reverse the country's low economic growth.
Current projections suggest that neither of the two main political formations is likely to get a majority, making them dependent on regional parties, which will effectively make the reform process more difficult. "Traders have started covering their dollar short positions since yesterday on the talk of the oil dollar window taper. The S&P comments seem to suggest that they will hold off on any ratings downgrade till the general elections," said Navin Raghuvanshi, vice president at Development Credit Bank. "The strengthening of the rupee may take some time," he said. The rupee was also hit by reports quoting a top finance ministry official as saying that 30-40 percent of the state-run companies' oil demand has returned to markets. Consistent dollar buying by some state-run banks in recent sessions had led to speculation that refiners were meeting some of their dollar demand directly from the market. Dealers cited some RBI intervention at the day's lows and towards the end of the session to support the rupee.
The rupee will struggle to gain any ground in the next 12 months due to uncertainty around elections, the country's external deficit and the impact of a possible tapering in the US Federal Reserve's stimulus programme. In the offshore non-deliverable forwards, the one-month contract was at 63.06, while the three-month was at 64.11.