The rupee continued to weaken amid demand for the dollar from foreign institutional investors (FIIs) exiting financial markets in emerging markets, including India, to leave gains in safe assets in advanced economies where interest rates are rising relatively faster.
Unlike the last two days, when the Reserve Bank of India (RBI) tried to counter the depreciation of the rupee by selling the dollar, central bank intervention was not felt in the market on Friday, according to currency dealers.
The rupee on Friday closed about 3 grooves weaker by 77.45 per dollar against a previous close of 77.4150. During the day, the Indian unit tested a maximum and a minimum of 77.26 and 77.48 respectively. On Thursday, the rupee experienced a historic low of 77.6250.
“The rupee has fallen sharply against the dollar due to galloping inflation both in the US and domestically. The aggressive rise in US rates has strengthened the dollar against a basket of currencies. FII outflows in capital may persist as normalization of interest rates in developed economies will affect growth prospects in emerging markets. The rupee is expected to move in the range of 75-78 rupees with fluctuations in both directions, ”said Sumya Kanti Ghosh, chief economic adviser to the State Bank of India group.
Meanwhile, high nearly eight-year retail inflation rates of 7.79 percent in April affected the government securities market (G-Secs) due to fears of higher rate increases by the RBI. The price of the 10-year benchmark G-Sec (coupon rate: 6.54 per cent) fell 49 pips and closed at £ 94.66 (previous close: £ 95.15). The yield on this security increased by about 7 basis points and closed at 7.3184 percent (7.2439 percent).
On Friday, RBI put up for auction four G-Secs (a total of 33,000 crore rupees) with higher yields, which may indicate that it wants to go with the flow in interest rate growth. For example, at the auction of the 10-year benchmark G-Sec the yield from the cut-off was about 8 basis points higher and was 7.3290 percent compared to the previous close. The cut-off price was 56 shares lower and amounted to Rs 94.59 compared to the previous close.
May 13, 2022