Rupee ends strong, yields fall, CBLO volumes touch new record high

RBI governor, D Subbarao, says that he does not have a specific foreign exchange rate target

The rupee ended strong against the dollar on Thursday due to dollar sale by custodian banks and exporters. However, during the day it had weakened after the Reserve Bank of India (RBI) governor D Subbarao did not make any soothing comments to lift rupee sentiments.

Subbarao said he does not have a specific foreign exchange rate target. His statement raised concerns that RBI is unlikely to defend any particular level strongly. The rupee had touched a low of Rs 60.39 in intra-day trades.

The rupee ended at Rs 60.13 per dollar compared with previous close of Rs 60.22. The rupee had opened at Rs 60.11 and during the day it had touched a high of Rs 59.91.

“The rupee recovered due to dollar sale by custodian banks and exporters due to which it ended stronger compared with previous close,” said Sandeep Gonsalves, forex consultant and dealer, Mecklai & Mecklai.

Last month the rupee touched an all-time low in intra-day trades at Rs 60.77 due to heavy month-end dollar demand from importers, fall in most emerging Asian currencies and continued sell off by Foreign Institutional Investors (FIIs) in domestic markets.

The street is now awaiting two crucial data from the US namely non-farm payrolls number and  the unemployment data. Any recover may again lead to concerns of Fed's pullback of QE3, said dealers.

“The rupee is expected to trade in the range of Rs 59.50 to Rs 60.50 per dollar tomorrow and the bias is more towards weakening,” said a currency dealer with a public sector bank.



The strengthening rupee also helped the government bond market. “Due to strengthening of the rupee, yields fell. Yields also fell because the liquidity situation has improved and there was buying interest,” said  S Srinivasaraghavan, executive vice president and head- treasury of Dhanlaxmi Bank.

The yield on the 10-year benchmark bond 7.16% 2023 ended at 7.42% compared with previous close of 7.50%.

Banks are preferring to tap Collateralized Borrowing and Lending Obligation (CBLO) market over RBI’s liquidity window. CBLO volumes touched a record high of Rs 1,03,390 crore on Thursday up from Rs 1,01,108 crore on Wednesday. While borrowing by banks under RBI's Liquidity Adjustment Facility (LAF) was Rs 6,180 crore compared with Rs 10,880 crore on Wednesday.