Thursday thriller

Written by fe Bureau | Mumbai | Updated: Sep 20 2013, 07:42am hrs
The rupee gained more than 2% to hit a 14-week high and government bond yields slipped 20 basis points on Thursday as the US Federal Reserve deferred tapering of its quantitative easing programme.

The rupee hit a 14-week high of 61.65/$ intraday before ending at 61.77/$ on Thursday, making it Asias best performing currency in Thursday trade. The rupee has rebounded by 10.5% from its all time low of 68.85/$ hit in late August.

Bond markets also responded positively to the Feds decision with the benchmark 7.16%, 2023, bond yields closing at 8.19%, 18 bps lower than Wednesdays close of 8.37%.

Market participants said the Feds move will encourage more dollar inflows into India as global liquidity is unlikely to reduce. While equity flows have already added up to over $1.7 billion month-to-date, traders expect that foreign inflows into the bond markets could also now start to revive.

After the Feds move, even Syria is looking better, emerging markets are looking better. Short-term flows will clearly be there, said Ananth Narayan G, co-head of wholesale banking and head of global markets, India at Standard Chartered Bank.

Rupee is set to rise to 60/$ on the back of such inflows, say most currency dealers.

FIIs have pulled out more than $10 billion from the Indian debt markets since May 22, when the US Federal Reserve first hinted at a pullback in its bond-buying programme of $85 billion a month. This sell-off from FIIs had pushed the rupee to a historic low of 68.85/$ in August and bond yields had surged by over 100 bps across maturities.

Given the rupees appreciation over last one week, some exporters who were otherwise on the sidelines have also started selling dollars, currency dealers said. Inflows have also started to pick up following the special swap facilities announced this month to enthuse banks to bring in dollars through borrowings and foreign currency deposits.

Global rating agency, Fitch Ratings, has predicted the rupee to rise to 59-60/$ by March.

The focus now shifts on the Reserve Bank of India policy on Friday, with some in the market expecting the RBI also to ease its stance and unwind some of the liquidity tightening measures announced over the last two months to support the Rupee. While the unwinding of such measures may not be positive for the currency, bond yields may ease further, say traders.

The 10-year benchmark bond yield is expected to ease to 8% over the next two weeks. Data from the Clearing Corp of India shows that public sector banks have been big buyers of bonds in the last two days.