Rupee falls on dollar sale speculation

MARKET ROUND-UP

The rupee fell, erasing earlier gains, on speculation that importers stepped up purchases of the dollar to take advantage of the exchange rate after the local currency strengthened to the highest level in almost two weeks.

The rupee also weakened as concern about Greece’s debt crisis persists, according to Naveen Raghuvanshi, a trader at Development Credit Bank in Mumbai. The currency had earlier advanced, as European finance ministers reached an agreement on a second bailout package for Greece, boosting demand for emerging-market assets. “We saw demand for dollars both from oil and gold importers,” Raghuvanshi said. “Also, there are still lingering concerns emanating from Europe.”

The rupee declined 0.1 per cent to 49.31 per dollar in Mumbai, according to data compiled by Bloomberg. The currency, which rose 0.3 per cent last week, touched 49.06 earlier on Tuesday, the strongest level since February 8.

Bond yields drop
10-year bonds rose, pushing yields to the lowest level in more than two weeks, as the central bank signalled it would take additional steps to ease a cash squeeze in the financial system. The Reserve Bank of India will consider increasing its open-market debt purchases and lowering lenders’ reserve requirements to release funds if necessary, deputy governor Subir Gokarn said in Mumbai on Tuesday. Banks borrowed an average Rs 1.3 lakh crore ($26.4 billion) a day from the monetary authority this quarter to meet cash shortages, compared with Rs 88,200 crore in the prior period, central bank data show.

The yield on the 8.79 per cent notes due November 2021 fell one basis point, or 0.01 percentage point, to 8.17 per cent in Mumbai, according to the central bank’s trading system. That is the lowest level since February 3. The cost of one-year interest-rate swaps, or derivative contracts used to guard against fluctuations in funding costs, fell two basis points to 8.07 percent, according to data compiled by Bloomberg.

Call rate down
The call rate eased on Tuesday, as demand for funds was subdued and banks’ borrowings from the central bank’s repo counter fell for the first time in five days. The call money rate was 8.70/8.75 per cent, lower than Friday’s close of 8.90/9.00 per cent for four-day loans. The market was closed yesterday on account of a local holiday.