Rupee at 2-week low; bond yields rise to 4-month high

The rupee ended weak on Wednesday, owing to losses in equities, with foreign investors pulling out of the markets. The rupee is expected to weaken further in the next few days. Government bond yields rose too.

The rupee had opened at 63.33 against the dollar on Wednesday and during intra-day trade,  touched a low of 63.66 before closing at 63.54, compared with the previous close of 63.44. The rupee had ended at 63.56 a dollar on April 24, 2015.

It ended weak on Wednesday due to nationalised banks’ dollar purchase from oil companies, said Sandeep Gonsalves, forex consultant and dealer, Mecklai & Mecklai.

“Besides, due to a fall in equities, there were FII (foreign institutional investor) outflows. The RBI (Reserve Bank of India) did intervene in the market. The sentiment in the market is negative and the rupee might trade between 63.50 and 64 a dollar,” Gonsalves added.

The yield on the 10 year benchmark government bond ended at a four-month high of 7.89 per cent compared to the previous close of 7.85 per cent.

The previous time yields hit such a high was on January 6 this year, when the yield on the 10-year bond touched 7.90 per cent.

RBI will sell government bonds worth Rs 16,000 crore in Friday’s auction as a result of which traders were seen selling bonds. These traders might buy bonds in the auction. Yields have also been rising globally, which has triggered selling among traders.

Global crude oil prices started rising recently and 2015 might witness below-normal monsoon. These factors have raised concerns on inflation as a result of which bond traders expect limited room for the central bank to cut interest rates further.

Since the start of 2015, RBI has cut the repo rate — the rate at which banks borrow from RBI — by 50 basis points. RBI will review the monetary policy again in June.