Rupee firms up, bond yields rise

Currency climbs to 65.25 due to dollar sales by companies

The rupee ended strong for the third day on Friday due to positive sentiments in the market. The appreciation was due to dollar sales by companies.

The rupee ended at 65.25 to a dollar, compared with Thursday’s close of 66.12. Friday’s was nearly a two-week high. It had ended at 64.31 on August 26.

The Reserve Bank of India’s recent moves to attract capital flows are helping. Besides, Japan and India decided to expand a bilateral currency swap facility from $15 billion to $50 bn after bilateral talks on the sidelines of a Group of 20 summit. This will help to bring more dollar flows.

Despite Friday’s strengthening, the rupee has weakened about 20 per cent since the financial year began in April. Currency dealers expect the strengthening to continue next week, on the back of positive sentiment.

Last month, the rupee had weakened to an all-time low of Rs 68.85 in intra-day trade due to month-end dollar demand by importers.

Raghuram Rajan, who took over as RBI chief on Wednesday, had announced steps to attract dollar inflows, including enhanced limits for exporters to re-book cancelled forward exchange contracts and a window to swap foreign currency deposits. News from the venue of the G-20 Summit in St Petersburg in Russia also appeared to give hope to investors. The BRICS grouping, including India, yesterday decided to launch a USD 100 billion currency reserve fund to help them navigate through an imminent phase out of the US stimulus.

The RBI's liquidity-tightening measures may be rolled back by October as market sentiment and the rupee are expected to improve, Barclays said. The fresh RBI steps are likely to raise the possibility of better forex inflows in the next three months, it said.

Government bond yields rose on Friday due to profit booking as traders unwound their positions. The yield on the 10-year benchmark bond 7.16 per cent 2023 ended at 8.63 per cent compared with the previous close of 8.42 per cent.

There was no devolvement on primary dealers in the government bond auction on Friday for a notified amount of Rs 10,000 crore. There had been in the past three auctions.