Rupee depreciates to over one-month low as FPIs sell equities

Rupee falls to 86/$ for the first time since April 11 amid equity outflows and stop-loss orders, while bond yields ease on expectations of RBI's surplus transfer

The rupee on Thursday depreciated to a one-month low against the dollar, following foreign outflows from domestic equities coupled with stop-losses being triggered at the 85.70 per dollar mark, said dealers.

 

The local currency depreciated to as much as 86.11 per dollar during the day before settling at 86 per dollar—the weakest level since 11 April this year. On Wednesday, the rupee had settled at 85.64 per dollar.

 

“Today’s move in USDINR was primarily due to stop-losses getting triggered above the 85.70 level and likely outflows from domestic equities (FII/FPI selling). However, the broad trend is that of dollar weakness,” said Abhishek Goenka, chief executive officer at IFA Global.

 

Dollar bids from foreign banks and state-owned banks further weighed on the rupee during the day, said dealers.

 

“In the near term, the rupee may depreciate towards 86.50–86.60. However, a medium-term appreciation remains possible, supported by a weaker dollar and strong Indian macro fundamentals,” said the treasury head at a private bank.

 

The rupee has depreciated by 0.6 per cent against the dollar in the current financial year so far, and by 0.5 per cent in the current calendar year. 

 

On the other hand, government bond yields continued to fall on expectations of a record surplus transfer by the Reserve Bank of India (RBI) to the government for FY25. The yield on the benchmark 10-year bond softened by 1 basis point to 6.24 per cent on Thursday.

 

The yield on the new 10-year government bond softened to 6.20 per cent during the day before inching up to 6.23 per cent, as traders sold the bond at a profit after the initial fall in yields. On Wednesday, the new 10-year bond had settled at 6.21 per cent.

 

The benchmark yield has softened by 33 basis points so far in the current financial year.

 

“There was profit booking in the last hour,” said a dealer at a primary dealership. “Mainly PSU banks were booking profit today (Thursday),” he added.

 

Market participants said that foreign portfolio investors are expected to continue their selling spree given the narrowing spread between the domestic 10-year government bond yield and the benchmark US 10-year bond yield.

 

The spread narrowed to a 20-year low of 164 basis points on Thursday, as yields on US Treasuries surged amid concerns over the fiscal deficit. According to Bloomberg data, this is the narrowest spread since 28 July 2004.