Rupee weakens to 9 month low; bond yields lowest in 16 months

Rupee ends at 62.03 compared with previous close of 61.88; Bond yield at 8.09%

The rupee weakened to a nine-month low on Friday, due to sustained dollar demand from importers, including oil companies.

The yield on the basic 10-year bond fell to its lowest level in 16 months, as a fall in global oil prices reinforced expectation of a rate cut by the central bank when it reviews monetary policy on Tuesday.

The rupee ended at 62.03 to the dollar, compared with Thursday's 61.88. It had ended at 62.04 on March 3 this year. The yield on the 10-year benchmark bond ended at 8.09 per cent compared with the previous close of 8.15 per cent. The yield had dropped to 8.08 per cent on August 1, 2013.

The rupee was also under pressure after government data showed the fiscal deficit has, by end-October, with five months to go for the financial year to end, already touched 89.6 per cent of the Budget Estimate for all of 2014-15, at Rs 4.75 lakh crore. During intra-day trade, the rupee touched 62.08 to a dollar.

Currency dealers expect the currency to weaken further next week, even touching 62.20. The broad trading range is seen between 62 and 62.20.

The Reserve Bank of India will review monetary policy on Tuesday and many believe it will retain the repo rate (at which it lends to banks) at eight per cent. However, they also believe it will acknowledge that retail inflation has been softening. It had dropped to 5.52 per cent for the month of October, down from 6.46 per cent the previous month.

“The yield on the 10-year bond might fall even below eight per cent next week, based on the dovish statements made by the central bank on the policy day,” said the head of treasury of a public sector bank.