The rupee plunged to a fresh record low on Friday, hitting 81.2250 to the dollar in intra-day trades before closing at 80.99 per dollar, against Thursday’s close of 80.86. Currency market dealers said the Reserve Bank of India (RBI) had intervened in the market, though this could not be independently confirmed. The rupee has now closed lower in seven out of eight sessions.
Meanwhile, the yield on the benchmark closed at 7.393%, a level last seen on July 22, up 8 basis points over Thursday’s close of 7.312%.
Piyush Wadhwa, head – financial markets & treasury, IDFC First Bank, said the rupee was likely to trade with a depreciating bias. “There are several factors that would determine the course of the currency, including the strength of the dollar and the extent of intervention by the central bank. We must remember we are running a pretty large trade deficit,” Wadhwa said.
The sentiment in the currency market has worsened after the US Fed hiked benchmark rates by 75 bps on Wednesday and its commentary sounded more hawkish than anticipated. The escalation of geopolitical tensions added to the gloom.
Ritesh Bhusari, DGM- Treasury, South Indian Bank, said it was possible the rupee could go to lower levels if policy rates do not increase here as per the expectations. The dollar is strong, there have been FPI outflows and that there is demand for dollars from importers. “The central bank would want to minimise volatility in the currency market but the rupee could fall to levels of 81.50,” he said.
Bhusari said he is expecting higher cut-offs at the T-Bill auction next week. “The OIS market is already indicating rates could head up,” he said
While bond yields were relatively steady ahead of the Fed rate hike, in anticipation India would soon join a global bond index, yields have trended up in the last few sessions. Moreover, the banking system saw a liquidity deficit on a couple of days earlier this week.
Pointing out that the yield on the Indian benchmark has risen far less than the yield on the 10-year US treasury, over the past one month or so, Wadhwa said it was possible yields would go up further. “While earlier the expectation was that RBI would hike the repo by 35 bps, it now looks like it’s going to be 50 bps,” he said.
Bhusari said he was expecting higher cut-offs at the T-Bill auction next week. “The OIS market is already indicating rates could head up,” he said.