Rupee declines to 2-year low

The rupee weakened a second day, as a sovereign credit-rating downgrade for Italy added to signs of Europe’s debt crisis worsening.

The currency trimmed losses, after touching a two-year low earlier, on speculation gains in local shares would spur foreign fund inflows. Standard & Poor’s yesterday cut its credit assessment for Italy by one step to A, saying the nation’s net debt levels were the highest among A-rated countries.

“The concern is mainly from the euro zone,” said J Moses Harding, an executive vice-president at IndusInd Bank Ltd. in Mumbai. He said global conditions would determine the direction of the rupee in the near term.

The rupee dropped 0.5 per cent to 48.06 per dollar at the close in Mumbai, according to data compiled by Bloomberg. It earlier touched 48.25, the lowest level since September 25, 2009.

The BSE India Ltd’s Sensitive Index gained the most in more than three weeks on Tuesday and European stocks rallied after Greece described its debt talks as “productive”.

Offshore forwards indicate the rupee would trade at 48.70 in three months, compared with expectations of 48.45 yesterday. Forwards are agreements to buy or sell assets at a set price and date.

BONDS CLOSE MIXED
Government bonds closed mixed, on alternate bouts of buying and selling.

The 7.80 per cent government security maturing in 2021 declined to Rs 96.5050 from 96.58 yesterday, while its yield moved up to 8.34 per cent from 8.32 per cent. The 7.83 per cent government security maturing in 2018 softened to Rs 97.42 from Rs 97.43, while its yield was ruled steady at 8.35 per cent.

The 8.08 per cent government security maturing 2022 and the 8.26 per cent government security maturing in 2027 also quoted lower at Rs 97.60 and Rs 97.24, respectively.

However, the 7.17 per cent government security maturing in 2015 firmed up to Rs 96.32 from Rs 96.29, while its yield eased to 8.33 per cent from 8.34 per cent and the 7.59 per cent government security maturing in 2016 also looked up to Rs 97.1750 from Rs 97.15, while its yield held steady at 8.35 per cent.

The Reserve Bank of India, under the Liquidity Adjustment Facility, purchased securities worth Rs 65,210 crore from 25 bids at the one-day repo auction at a fixed rate of 8.25 per cent.

CALL RATE EDGES UP
The call rate edged up at the overnight call money market on Tuesday due to good demand from borrowing banks. The overnight call money rate closed at 8.30 per cent from yesterday's closing level of 8.25 per cent. It moved in a range of 8.35 per cent and 7.75 per cent.