With oil prices rising to levels of $86 per barrel and the dollar strengthening, the rupee drifted down new lows on Thursday of 73.58 to the dollar. Spooked by the fast deteriorating macro-environment, stocks crashed — the Sensex plummeted 806.47 points to end the session at 35,169.16. Foreign portfolio investors (FPI) have been offloading equities and have sold close to $5 billion worth of stocks since April.
Even as treasury yields in the US hit their highest levels in seven years, the Indian benchmark yield rose 5 basis points to 8.16%. Yields have gone up sharply at the shorter end too over the past several sessions, rising by about 15-120 basis points. This is despite the fact that the central bank has assured the market of liquidity support.
The bond markets are pricing in a hike in the repo rate of 25 basis points on Friday when the central banks reviews monetary policy.
With importers rushing to cover, the premium on three-month forward contracts jumped to levels of 4.61%, around11 basis points (bps) over Wednesday’s close. The rupee weakened despite the Reserve Bank of India making foreign currency borrowing norms easier for oil marketing companies.