Rupee slides, bond yields rise as crude prices hit seven-year high

The rupee was at 74.53 a dollar at 11.40am, down from its previous close of 74.31, as the dollar index crossed 94: its highest level since November 2020

The Indian rupee and bond prices fell on Tuesday as crude prices shot up to a seven-year high, pulling down stocks globally and firming up the dollar index.
 
The rupee closed at 74.44 a dollar after staging a comeback from its intraday low of 74.6325 a dollar. However, it was down from its previous close of 74.31. The dollar index, which measures the greenback’s strength against major global currencies, crossed 94 — its highest level since November 2020.
 
Despite that, a strong performance by the local stock index helped stem the rupee loss. Dealers say domestic investors filled in the space left by foreign investors. The BSE Sensex closed up by 445 points, or 0.75 per cent, at 59,744.88 points even as Nasdaq had fallen over 2 per cent overnight.
 
The 10-year bond yield closed at 6.261 per cent, up from its previous close of 6.248 per cent. In the intraday trade, the bond yields had crossed 6.27 per cent, fearing widening fiscal deficit and rising inflation as the crude prices firmed up. 
 
The outlook upgrade action by Moody’s, however, will make life easier for policy makers, and bond yields are expected to fall ahead of the three-day monetary policy committee (MPC) meeting, starting Wednesday.
 
The six-member committee, headed by Reserve Bank of India Governor Shaktikanta Das, has kept rates low even before the pandemic started, but rising yields make its objective of supporting growth difficult. However, the central bank also gave a signal about its comfort with higher rates by allowing the cut-off at the seven-day reverse repo at 3.99 per cent, the same as the repo rate.

Notwithstanding the measures taken by the central bank in its upcoming policy, it will likely “move gradually, trying to minimise market disruption to the best of its ability”, HSBC noted in a report on Tuesday.
 
Amit Pabari, managing director of CR Forex, said: “Domestically, the rupee has been feeling the prick of pins and needles right from the soaring trade deficit, a steady dollar rebound, and 7-year high moving crude oil prices.”
 
“That apart, fears of further defaults by Evergrande are dragging the risk-off sentiment and continue to underpin dollar rebound, thereby putting USD-INR pair under pressure.”
 
The upcoming initial public offerings should help make rupee a turnaround, or prevent it from a rapid slide. Besides, the near $640 billion reserves of the RBI should be able to give stability to the Indian currency as well, according to experts.