Tuesday, 19 October, 2021

Indian rupee slides, bond yields rise

Indian rupee slides, bond yields rise

NEW DELHI: The Indian rupee weakened and bond yields rose Tuesday as crude prices shot up to a seven-year high, pulling down stocks globally and firming up the dollar index.

The rupee was at 74.53 a dollar at 11.40am, down from its previous close of 74.31, as the dollar index crossed 94: its highest level since November 2020. Rupee’s intraday low of Rs 74.63 was the lowest since July 20 this year, report agencies.

The dollar index measures the greenback’s strength against major global currencies. The 10-year bond yields were at 6.274 per cent, up from its previous close of 6.248 per cent.

The NASDAQ fell over 2 per cent overnight, bringing down the global markets. However, the Indian equities remained largely steady aided by domestic investors. The Sensex was at 59,256.13, down just 43.19 points, or 0.073 per cent.

The rise in bond yields, however, will make the monetary policy committee’s (MPC) policy decisions trickier. The six-member committee, headed by Reserve Bank of India governor Shaktikanta Das, is meeting for three days starting Wednesday to decide on rates. The central bank has kept rates low even before the pandemic started, but rising yields make its objective of supporting growth difficult. However, the central bank also gave a signal about its comfort with higher rates by allowing the cut-off at the seven-day reverse repo at 3.99 per cent, the same as the repo rate.

Notwithstanding the measures taken by the central bank in its upcoming policy, it will likely “move gradually, trying to minimise market disruption to the best of its ability,” HSBC noted in a report on Tuesday.

“Domestically, the rupee has been feeling the prick of pins and needles right from the soaring trade deficit, a steady dollar rebound, and 7-year high moving crude oil prices,” said Amit Pabari, managing director of CR Forex.

“That apart, fears of further defaults by Evergrande are dragging the risk-off sentiment and continue to underpin dollar rebound, thereby putting USDINR pair under pressure,” Pabari said.

However, the upcoming initial public offerings should help make rupee a turnaround, or prevent it from a rapid slide. Besides, the near $640 billion reserves of the RBI should be able to give stability to the Indian currency as well, according to experts.