US Fed statement spooks markets

Written by ENS Economic Bureau | Mumbai | Updated: Jun 21 2013, 19:29pm hrs
The US Federal Reserves signal to slow its $85 billion-a-month bond-buying programme this year and probably end it next year roiled global currencies with the rupee plummeting to a record low of Rs 59.98.

The Reserve Bank of India and the government later stepped in to rescue the falling rupee, which finally closed at 59.57 a 1.48 per cent loss against the dollar. The RBI sold US dollar while finance ministrys chief economic adviser Raghuram Rajan tried to calm frayed nerves, stating the government is ready to take steps to curb volatility and is not short of instruments to tackle the slide in the rupee.

The currency had earlier hits an all-time intra-day low of 58.98 on June 11. The rupee, now Asias worst performing currency, has plunged nearly 10 per cent this quarter.

The falling rupee and a narrowing differential with US Treasury yields have spurred foreign investors to sell a net $4.7 billion over the 19 sessions. The dollar made hefty gains against major counterparts after the Feds statement. Among other global currencies, South Korean won lost 1.33 per cent, Philippines peso 1.69 per cent, Malaysian ringgit 1.65 per cent, Russian rouble one per cent and Japanese yen 1.47 per cent. Head of treasury of IDBI Bank, N Venkatesh, said the move in the rupee was exaggerated and more of a knee-jerk reaction to global moves.

Kuntal Sur, director, KPMG in India, said the ballooning current account deficit and cloudy outlook of reforms have added to the local currencys woes.

Yields on govt bonds surge

Mumbai: Yields on government bonds surged and prices declined after the rupee plummeted and stocks tanked, raising fears that the RBI may not be able to slash policy rates in the near future. The 8.33 per cent government security maturing in 2026 fell to Rs 105.8250 from Rs 107.2950 on Wednesday, while its yield shot-up to 7.62 per cent from 7.45 per cent. The 8.15 per cent government security maturing in 2022 dropped to Rs 103.29 from Rs 104.39, while its yield climbed to 7.64 per cent from 7.47 per cent. ens

Sensex sheds 526 points ENS economic bureau

The BSE Sensex on Thursday witnessed its biggest fall in 28 months, closing the day at 18,719.29 down 2.74 per cent or 526.41 points while the Nifty at the NSE fell by 166.35 points or 2.86 per cent during the day to close at 5,655.9.

The plunge in the domestic markets was broadly in line with global bourses, which were roiled by a signal from US Federal Reserve chairman Ben Bernanke that the central bank may be done with its monetary stimulus by next year. The fall Indian markets also coincided with a massive sell-off by foreign institutional investors (FIIs) on Thursday amounting to Rs 2,094 crore.

Market participants, however, called it an over-reaction. Everyone knew that there will be withdrawal of QE and therefore sharp fall in markets worldwide on the announcement of timeline of withdrawal is an overreaction. The markets will find its rationale going forward, said Aseem Dhru, CEO, HDFC Securities.

Experts said that Indian markets are delicately poised as there are concerns around current account deficit, currency and FII movement and investors should not look to enter the market for quick gains. FII redemptions are strong and if more redemptions come along then there will be more pressure. It is not the time to enter as the markets are very volatile. People should wait for things to settle down, said Dhru.

While the FII redemptions in June have been strong on the debt side and stood at $3.66 billion, the outflow from the equities have picked up in the last few trading sessions.

Concerns over withdrawal of funds by FIIs and the consequent impact on the rupee as well as financing of CAD, soured sentiments, said Dipen Shah, head of research at Kotak Securities.

Gold, silver lose sheen

Mumbai/ London: Gold prices tumbled to their lowest in more than 2-1/2 years in London on Thursday and silver fell more than 6 per cent. The yellow metal traded below $1,300 an ounce as traders scrambled to sell their gold before the US Federal Reserve potentially curtails its bond-buying programme. Spot gold was down 3.5 per cent at $1,302.90.

Meanwhile, in Mumbai, standard gold fell by Rs 765 to Rs 27,160 per 10 grams and silver crashed by Rs 1,935 per kg to Rs 43,115.