Rupee's weakness to continue; yields may rise further

RBI's intervention has proved to be insufficient as rupee touched all time high today

Despite the measures announced by the Reserve Bank of India (RBI) and the government, the rupee touched a new all-time low and government bond yields touched five year high. Currency experts are of the view that the rupee will weaken further. Tracking the rupee's weakness yields may rise further hitting profitability of banks in the current quarter to a major extent.

 

In intra-day trades the rupee weakened to Rs 63.23 against the dollar and ended the day at an all-time closing low of Rs 63.13 compared with Friday's close of Rs 61.71. The yield on the 10-year benchmark government bond 7.16% 2023 ended at 9.23% after rising to 9.26% in intra-day trades, a level seen on August 1, 2008.

 

“Monetary policy measures taken by RBI has resulted in very large damage to growth prospects and the fixed income and equity markets. They have had very little impact on the exchange rate, if any. One can only hope that the conclusion they (RBI) draw is that higher interest rates and tighter liquidity is not the medicine for the exchange rate challenge,” said Hitendra Dave, managing director, head of global markets, India at Hongkong and Shanghai Banking Corporation (HSBC). 

 

The outlook remains weak for the rupee and growth of the economy is a concern. “Rupee outlook is weak and all tough measures to support rupee has not yielded desired results. On the contrary, rupee is sliding further. The concern has now shifted to growth,” said J Moses Harding, executive director and chief business officer at Lakshmi Vilas Bank.

 

According to currency experts month-end dollar demand from importers is set to put further pressure on the rupee in the next few days due to which more weakness is in store. “At the current pace of rupee weakening, the expectations seem to be getting unhinged once again, and unless we see a let off in the global environment or some material measures from the government/RBI, we could well overshoot through 65 soon,” said Brijen Puri, executive director and head of markets, JP Morgan.