Rupee falls to 5-month low, bond yields continue to rise

On Wednesday, the rupee ended at 61.5/dollar, a five-month low, compared with its previous close of 60.85/dollar, owing to increased demand for dollars after data showed the US was on a recovery path. There is concern the US might resort to raising interest rates sooner than expected, due to which emerging markets such as India will see outflows.

The rupee opened at 61.04/dollar and, during intra-day trade, touched a low of 61.53/dollar.

On March 5, it had closed at 61.76 a dollar. Since the beginning of this financial year, the currency has depreciated three per cent.

"On Wednesday, the Reserve Bank of India (RBI) intervened through state-run banks, but in small volumes. There was not much dollar supply," said Sandeep Gonsalves, forex consultant and dealer, Mecklai & Mecklai.

RBI's foreign exchange reserves are only $23 million short of its all-time high of $320.79 billion, recorded on September 2, 2011.

Anindya Banerjee, currency analyst at Kotak Securities, said, "RBI's forex reserves are for calamities and when there is a gross imbalance in the market. If there is dollar appreciation across the globe and currencies of all other emerging nations are depreciating, RBI won't prop the currency artificially. A weak rupee is like an economic stimulus."

The US Federal Reserve has decided to further cut its bond-buying programme, a dampener for the rupee. "In the past, when quantitative easing was stopped, financial markets' fragility across the globe increased. In the next one-two months, the rupee could cross 62-62.5 a dollar," said Banerjee.

Meanwhile, government bond yields continued to rise on Wednesday, a day after the central bank decided to cut the statutory liquidity ratio (SLR) requirement by 50 basis points to 22 per cent. The yield on the 10-year bond ended at 8.64 per cent, compared with the previous close of 8.61 per cent. There is concern in the bond market foreign investors will cut their bond holdings due to the worsening sentiment in global markets. "There is lack of buying in bonds and the yield on the 10-year bond could touch 8.7 per cent soon," said Debendra Kumar Dash, associate vice-president (treasury), Development Credit Bank.

On Tuesday, the yield on the 10-year bond had risen 11 basis points.