Rupee closes at two-year low of 46 to a dollar
The rupee continued to lose out against the US currency and declined further, crossing the 46 mark to a dollar today, as foreign investors sold off shares in the domestic market amid volatility in global financial markets. A strong demand for the greenback from importers also led the rupee downward.
The news of US finance major Lehman Brothers filing for bankruptcy protection and a precarious health of other companies weighed heavily on the market trends, said dealers.
The Reserve Bank of India (RBI) was seen intervening in the market by selling the dollar through public sector banks. “RBI was active all through the trading, but not substantial to check the slide as demand from FIIs and importers remained ahead of the supply,” a treasury head of a mid-size public sector bank said.
The cues from the equity market impacted the foreign exchange market. There was a general bearishness among market participants as there were no dollar inflows and they could not see when and how the situation would improve, a senior dealer of a private bank said.
A senior State Bank of India official said the scenario for American banking and financial firms looks bleak. It has direct impact on the way overseas investors operate in the Indian equity market.
Overseas investors sold a net Rs 856 crore ($2,12.3 million) of Indian stocks on September 12, increasing their net outflow this year from equities to $8.01 billion, according to the Securities and Exchange Board of India data.
A dealer of a large public sector bank said demand for dollars from importers, especially state-owned oil marketing companies, remains high as they want to cover their requirements the most when the global crude oil prices are ruling below $100 a barrel.
While demand for the dollar is on the rise, the supply is quite low. RBI seems to be the only significant seller in the market. The trend emerging from the rupee derivatives traded abroad is also bearish. The one-month offshore non-deliverable forward (NDF) contracts were quoting at 46.32/42 to a dollar, 0.6 per cent weaker than the onshore spot rate.
Bonds rally as oil dips
The yield on the government bonds fell to a three-month low today as fears of a further monetary tightening by the Reserve Bank of India (RBI) faded and global oil prices continued to spiral downwards.
The yield on the 10-year benchmark 8.24 per cent, 2018 paper was 8.15 per cent, down 21 basis points from Friday’s close of 8.36 per cent.
A turnaround in the sentiment has been rather quick with oil prices falling and China cutting its interest rates. The market now expects RBI to follow suit sooner or later to sustain the growth momentum, said a dealer of a large private bank.
The People’s Bank of China today cut the one-year benchmark lending rate to 7.20 per cent, effective Tuesday, and also lowered the reserve ratio requirement by 100 basis points for smaller banks to boost economic growth.