The Indian currency has now lost nearly 9% since January, making it Asia’s worst performing currency
The rupee on Friday slipped to a record low of 70.2350 against the dollar in intra-currency trades but ended the session above the 70-mark at 69.910. The Indian currency has now lost nearly 9% since January, making it Asia’s worst performing currency.
While there was no confirmation, currency market dealers believe the Reserve Bank of India (RBI) intervened in the market. Moreover, it is possible, they said, corporates may have sold dollars allowing the rupee to recover much of the lost ground.
Emerging market (EM) currencies were somewhat volatile on Friday after The US and China activated yet another round of tariffs on $16 billion worth of merchandise.
The rupee has also been impacted by the contagion effect of the steep depreciation of the Turkish lira and the accompanying fall in other EM currencies. Interestingly, the dollar index – dollex hovered around 95.317 levels down from 95.9 on Monday.
In a recent interview to Bloomberg, Raghuram Rajan, the former RBI governor, said the rupee value is not too big of a worry right now. “I think the rupee has not depreciated to worrying levels, it is the dollar strength around the world,” he said during the interview. “This is the time when the country should focus on macro stability considering it is going into an election year.” Rajan added.
Economists say expect the current account deficit (CAD) to widen to 2.8% of the GDP in 2018-19 from 1.9% in 2017-18. Sonal Varma, economist at Nomura, said the import growth is likely to remain elevated in the near-term due to high oil prices.
“We, however, expect weak rupee and domestic slowdown to moderate imports in coming quarters. We expect balance of payment (BOP) funding to remain a challenge in FY19 as the basic BOP which includes both current account and net foreign direct investment (FDI) is negative and portfolio flows also remain negative,” Varma added.
The crude oil remained elevated at $75.57 per barrel, up by over $3 from Monday. The yield on the benchmark bond also rose nearly 4 basis points to 7.873% compared to Monday’s level.
Bonds firm up, call ratesturn higher
Government bonds (G-Secs) firmed up following rising demand from corporates and banks. The overnight call money rates too turned higher due to good demand from borrowing banks amid tight liquidity in the banking system.
The 7.17% 10-year benchmark bond maturing in 2028 went-up to Rs 95.3950 from Rs 95.3525, while its yield inched down to 7.87% from 7.88%. The 6.84% government security maturing in 2022 surged to `96.23 from `96.2025, while its yield eased to 7.88% from 7.89%. The 6.68% government security maturing in 2031 slid to `89.0050 from `89.0825, while its yield gained to 8.06% from 8.04%.
The 7.59% government security maturing in 2026, the 7.06% government security maturing in 2046 and the 7.80% government security maturing in 2020 were also quoted higher at `97.43, `87.4775 and `100.32, respectively.
The overnight call money rates finished higher at 6.50% from Thursday’s level of 6.35%. It resumed higher at 6.55% and moved in a range of 6.60% and 6.20%.
Meanwhile, RBI under the Liquidity Adjustment Facility, purchased securities worth `76.49 billion in 10-bids at the 3-day repo operations at a fixed rate of 6.50% as on Friday, while, its sold securities worth `156.19 billion in 43-bids at the overnight reverse repo auction at a fixed rate of 6.25% as on August 23.
(With inputs from PTI)