Indian rupee, bonds fall as Street fears RBI will reduce liquid diet

Nov 12 2013, 08:54 IST
Comments 0
A weaker currency and higher interest rates in the bond market pushed broader equity markets and bank stocks lower (AP) A weaker currency and higher interest rates in the bond market pushed broader equity markets and bank stocks lower (AP)
SummaryGloom over market as US Fed taper fears loom over positive trade data, hits Indian rupee.

Despite encouraging trade data for October, the Indian rupee fell through the 63-mark on Monday to end near a two-month low while worries about an earlier-than expected tapering of the US Federal Reserve’s stimulus measures coupled with fears of an overhang of gilts in the local market pushed bond yields past the 9% mark.

The yield on the 10-year benchmark 7.16%, 2023 bond touched an intra-day high of 9.14%, before easing to 8.95% at close; these levels have not been seen since mid-August when the Reserve Bank of India (RBI) had abruptly tightened liquidity to stem the rupee’s fall. On August 17, the 10-year bond yield had closed at 9.24%.

A weaker currency and higher interest rates in the bond market pushed broader equity markets and bank stocks lower. Extending losses for the fifth consecutive session, benchmark Indian indices declined nearly 1% on Monday, led by sharp losses in shares of banks and rate-sensitive companies. In a volatile session, the Sensex shed 175.19 points to end at 20,490.96 — a three-week low — while the Nifty gave up 1.01% to settle at 6078.80.

While a part of the jump in yields was in line with global yields moving higher — the yield on the US treasury hit 2.75% — much of it was due to apprehension the RBI would not infuse further liquidity via open market operations (OMO). “About 7-8 basis points of today’s move in the yield can be attributed to the better-than-expected US data but a large part is due to the lack of OMOs,” Jayesh Mehta, MD & country treasurer, Bank of America, said. Yields could rise to 9.20% before stabilising, added IDBI Bank head of treasury NS Venkatesh.

Meanwhile, better jobs data from the US sent the dollar soaring against most global currencies; the dollar index was ruling at 81.157 against 81.14 in mid-September. Expectations that the US Fed’s taper of its $85 billion monthly bond purchases could begin early next year pushed up treasury yields to 2.75.

Despite trade deficit for October halving to $10.5 billion year-on-year, currency markets refused to be cheered.

The rupee took a knock losing 1.22% to end near a two-month low of 63.24 per dollar. Urjit Patel, deputy governor, RBI, noted in an interview with a television network that while the deficit was higher than that in September, the fact that it was 50% of that in October last year

Single Page Format
Ads by Google

More from Frontpage

Reader´s Comments
| Post a Comment
Please Wait while comments are loading...