Trend reverses: Rupee, bond yields get some succour

By: | Published: September 13, 2018 6:19 AM

The markets were comforted by the possibility the government would in coordination with the Reserve Bank of India (RBI) take a series of fiscal and monetary measures to ease the pressure on the currency and arrest the rise in bond yields.

Reserve Bank of India, Rupee, bond yields, Sensex, monetary policy committeeThe rupee on Wednesday recovered by 73 paise from new intra-day lows before ending the session at 72.1850 to the dollar, up 51 paise over Tuesday’s close.

The markets were comforted by the possibility the government would in coordination with the Reserve Bank of India (RBI) take a series of fiscal and monetary measures to ease the pressure on the currency and arrest the rise in bond yields. The Prime Minister is expected be holding meetings with his advisers over the weekend. The yield on the benchmark bond fell by 5 basis points on Wednesday, closing at 8.13%. The rupee on Wednesday recovered by 73 paise from new intra-day lows before ending the session at 72.1850 to the dollar, up 51 paise over Tuesday’s close. The rupee has now lost 11.5% since January. The Sensex opened in the red but regained some ground and ended at 37717.96 points, up nearly 305 points over Tuesday’s close.

Treasurers are anxious about the sharp jump in yields on commercial paper, certificates of deposit and corporate bonds; in September so far they have risen by 25-30 basis points. Banks are worried about the losses on their bond portfolios. The markets are concerned about the inflationary impact of the weakening currency or the imported inflation. They believe the RBI will hike the key policy rate at the next monetary policy meeting. The central bank raised rates by 25 basis points each at its last two monetary policy committee meetings.

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