Currency drops 32 paise, 10-year bond prices rise on rate hike fears.
Mumbai : The Indian rupee on Friday crashed below the key 66 level to settle at a 13-month low of 66.12 against the US currency, while the 10-year bond prices climbed 6 basis points as probability of rate hike increased after the central bank’s surprised hawkish minutes.
Extending its slide for a fifth day, the domestic currency took a hit of 32 paise to close at more than one-year low as the RBI’s surprised hawkish tone kept overall sentiment bearish. This is the lowest closing level of the rupee since March 10, 2017, when it had settled at 66.60 against the US dollar.
“Indian rupee fell for a fifth session as RBI minutes revealed that RBI’s tone is more hawkish than what markets had previously gauged. FII selling and firm oil adds to pressure on rupee, while US dollar is also not expected to yield much ahead of May’s FOMC meet,” Anand James, Chief Market Strategist at Geojit Financial Services said.
However, the 10-year bond yield trimmed some of its gains and but managed to close higher from its previous close. The 10-year government bond yield closed at 7.686 per cent, up 6 basis points, from its previous close of 7.63 per cent. Bond yields and prices move in opposite directions. Headwinds in the form of widening in trade deficit due to surging crude prices accompanied by portfolio outflows amid unsupportive global factors have weighed on the local currency in the last few trading session.
Overall forex mood turned fragile following a probability of rate hike as early as June despite easing inflation, a currency dealer said. The rupee has dropped by more than 1 per cent in April and by 3.52 per cent this year so far.
The RBI earlier this month outlined higher growth expectations for the new fiscal citing strong revival in investment activity and also lowered its inflation forecast. It though kept key policy rate unchanged for the fourth consecutive time since August.
Moreover, higher US yields largely supported the greenback.
The benchmark US 10-year treasury yield topped 2.90 per cent and was eyeing the elusive 3 per cent level.
Meanwhile, crude prices stayed near three-year highs reached earlier this week, supported by continued Middle East tensions and signs of healthy US demand.
Brent crude was trading at $73.30 a barrel in early Asian trade. But, expectations of capital inflows into the country on the back of strong macro fundamentals along with record foreign capital reserves would limit the currency volatility, a forex dealer said. India’s foreign exchange reserves rose to a life-time high of $424.864 billion at the first week of April, aided by increase in foreign currency assets, according to the RBI data.
