|
| Rupee drops to two-week low |
| Bloomberg / Oct 23, 2009, 00:29 IST |
|
Rupee dropped, completing the biggest two-day loss in two months, as declines in local stocks spurred speculation capital inflows will slow.
 The currency fell to the lowest level in almost two weeks as the Bombay Stock Exchange’s Sensitive Index, or Sensex, dropped 1.3 per cent, taking this week’s losses so far to 3.1 per cent. The rupee also declined as a gauge that tracks the dollar against a basket of currencies rose, signalling investors are choosing the relative safety of the greenback over emerging- market assets.
“The stock market is running a bit out of steam and that’s having some effect on the currency,” said Sanjay Arya, a treasurer at state-owned Bank of Maharashtra in Mumbai. “The dollar is showing some positive correction.”
The rupee weakened 0.6 per cent to 46.7425\ a dollar as of the 5 pm close in Mumbai. It lost 0.8 per cent on Wednesday, the biggest drop since August 17. The currency may trade between 46.35 and 46.75 in the coming days, Arya said.
Offshore contracts indicate bets the rupee will trade at 46.87 to the dollar in a month, compared with a prediction of 46.59 at the end of last week. Forwards are agreements in which assets are bought and sold at current prices for future delivery. Non-deliverable contracts are settled in dollars rather than the local currency.
Indian equities are “beginning to look expensive” after the Sensex rose more than 75 per cent this year, Robert Prior Wandesforde, an economist at HSBC Holdings Plc in Singapore, wrote in a research note on Wednesday. The so-called price-to- earnings ratio of the benchmark index climbed on October 16 to 21.4, the most since February 2008.
The Dollar Index, which the ICE uses to track the greenback against the currencies of six major US trading partners, climbed 0.5 per cent on Thursday, the most since October 9.
Bonds decline as costlier crude oil may stoke inflation Bonds fell on concern of crude oil prices near the highest levels in a year will spur inflation, eroding the value of fixed-income assets.
The yield on the most-traded notes due in 2019 climbed to a one-month high after a government report today showed wholesale prices rose at the fastest pace since May. Crude oil on Wednesday reached $82 a barrel in New York for the first time in a year, having jumped more than 80 per cent since the end of 2008. Bonds also fell on speculation investors pared holdings to raise cash for purchases at a debt auction on Friday.
“Inflation is gradually becoming a concern bigger than it was before,” said Roy Paul, assistant manager of treasury at Federal Bank in Mumbai. “The debt sale is only adding to the present bearish undertone for bonds.”
The yield on the 6.90 per cent note due July 2019 rose by three basis points, or 0.03 percentage points, to 7.38 per cent as of the 5:30 pm close in Mumbai, according to the central bank’s trading system. The price fell 0.22, or 22 paise per 100 rupee face amount, to 96.68.
India’s wholesale price index rose 1.21 per cent from a year earlier in the week ended October 10, after increasing 0.92 per cent the previous week, the Commerce Ministry said in New Delhi on Thursday. Economists expected a 1.1 per cent increase.
Faster inflation can push bond yields higher, affecting the profits of banks adversely, the Reserve Bank of India said in its annual report on banking on Thursday. Banks are the biggest buyers of government debt in India, holding about 70 per cent off outstanding securities.
Government borrowing
The federal government plans to sell Rs 10,000 crore ($2.2 billion) of bonds maturing in 2016, 2019 and 2032 on Friday, according to the finance ministry. It plans to borrow as much as Rs 1.23 lakh crore in the second half of the fiscal year ending March.
The central bank faces a “major challenge” in managing the government’s debt sale plan, which has fueled a record jump in bond yields this year and made it “difficult” to keep prices stable, it said in the report.
The increase in bond yields conflicts with the “low interest-rate regime” that the central bank is maintaining to revive economic growth. The Mumbai-based bank has kept its benchmark rates at record lows after cutting them six times between October 2008 and April 2009.
Benchmark 10-year government bond yields in India have added 2.13 percentage points this year as Finance Minister Pranab Mukherjee plans to borrow an all-time high Rs 4.51 lakh crore in the year ending March 31 to bridge a widening budget deficit.
The cost of five-year interest-rate swaps, or derivative contracts used to guard against fluctuations in borrowing costs, increased. The rate, a fixed payment made to receive floating rates, rose to 6.96 per cent from 6.9 per cent on Wednesday.
|
|
|
|
|
|
|
|
|
|
 Read Business news in |  |
|
|
|
|
|
|
Advertisements |
|
|
|
|
|
|
|
|
|
Content Guide
