NEW DELHI– After closing at an all-time low against the US dollar on Monday, the rupee clawed back ground as the greenback retreated globally and as traders took comfort from likely large-scale market interventions by the Reserve Bank of India to protect the Indian currency from excessive volatility, dealers said.
Government bonds too enjoyed a sharp rise in prices as media reports said that the Centre was in discussion with the RBI to reduce its borrowing costs.
The reports said that the government was not comfortable with the current level of gilt yields and that it has asked its debt manager, the RBI, to consider the use of open market operations to rein in surging yields.
The partially convertible rupee opened at 77.3660/$1 as against the record closing low of 77.4650/$1 on Monday. Yield on the 10-year benchmark bond was last at 7.37 per cent as against 7.46 per cent at previous close. Bond prices and yields move inversely.
Yield on the 10-year benchmark government bond has hardened close to 100 bps so far in 2022, due to the RBI tightening monetary policy and a huge bond supply burden. Sovereign bonds are the benchmarks for pricing credit products in the economy.
The Indian currency, which was last at 77.2280/$1, had touched an all-time low of 77.5250/$1 during trade on Monday. So far in the day, the rupee moved in a band of 77.2150-77.4570/$1.
The rupee had plummeted to its lifetime low as anticipation of a quick pace of rate hikes in the US pushed up the country’s bond yields and consequently, the dollar index to near-20-year highs.
The US dollar index, which measures the currency against six major rival currencies, was last at 103.55 as against 103.70 at previous close. The index has surged close to 8 per cent so far in 2022.
With interest rates heading higher at a rapid pace in the world’s largest economy, emerging market currencies such as the rupee have weakened against the US dollar.
The rupee’s slide, 3.5 per cent versus the US dollar so far in 2022, has been accompanied by massive sales of Indian equities – more than Rs 1.3 lakh crore – over the same period.
However, with the rupee breaking past previous lifetime lows, the RBI on Monday was said to have intervened heavily in the foreign exchange market particularly in the forwards segment, in order to rein in the weakness in the domestic currency.
“Yesterday, we saw the rupee weakening up to 77.50 levels to where we saw some exporters selling while importers were buying near 77.20 amid trigger of their stop losses and a further weaker outlook for the rupee,” CR Forex Advisors MD Amit Pabari said.
“Overall, the support of 76.95 becomes crucial for the USDINR pair while the upside is open and the RBI action will be watched near 77.70-78.00 levels.”
Source Name:-Economic Times