Rupee rises, bond yields fall

Indian currency ends at near 11-day high of 61.32 to a dollar; it had touched an all-time low of 68.85 on Aug 28

The rupee appreciated and government bond yields fell as the Reserve Bank of India (RBI) cheered the streets with the second quarter monetary policy review which was on expected lines. Experts had expected RBI to hike the repo rate by 25 basis points with a cut in Marginal Standing Facility (MSF) rate by an equal quantum. The market had also expected RBI to increased the liquidity provided through term repos of 7-days and 14-days tenure to 0.50 per cent of banks Net Demand and Time Liabilities (NDTL) from 0.25 per cent earlier.

The rupee ended at a level near 11-days high at Rs 61.32 today compared with Rs 61.53 yesterday. The rupee had opened at Rs 61.61 and during intra-day trades it touched a low of Rs 61.72 per dollar. The rupee had ended at Rs 61.27 per dollar on October 18.

“Sentiments improved on account of RBI's measures on the liquidity front. RBI gave a signal that they are comfortable and confident with the stable rupee. Besides that rise in domestic equities also helped the rupee,” said Partha Bhattacharya, deputy CEO, Mecklai Financial. According to Bhattacharya the rupee may trade in the range of Rs 60.50 to Rs 62.20 in the next few days.

The rupee had touched an all-time low of Rs 68.85 per dollar on August 28 due to month-end dollar demand from importers. But in recent times the rupee has been less volatile. However, despite today's strengthening, since the start of this fiscal the rupee had weakened by almost 13 per cent.

The government bond market also reacted positively with the yield on the 10-year benchmark government bond 7.16 per cent 2023 falling to a level last seen over two-week ago. The yield ended at 8.54 per cent today compared with previous close of 8.66 per cent. The yield had ended at 8.49 per cent on October 11.

“The consensus estimate going into the policy was for a 25 basis points hike in repo with a 25 basis points cut in the MSF rate accompanied by a hawkish stance. Hence, implying a 25 basis points hike in the December policy. However the policy today seems to have a more neutral bias than expected. The second rate hike may now get postponed to either January or February due to which the bond market reacted positively,” said Brijen Puri, executive director and head of markets, JP Morgan.