 "Reserve Bank of India, RBI")
The Reserve Bank of India (RBI) on Thursday intervened in the foreign exchange market which prevented the currency from hitting an all-time low amid hardening of US treasury yields.
The rupee moved in a range of 83.25-83.28 per US dollar for the entire day.
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It settled at Rs 83.24 a dollar against Rs 83.25 a dollar on Wednesday.
Market participants speculated that the central bank is consistently intervening in the non-deliverable forward market to influence the rupee's opening in the spot session.
The yield on the benchmark 10-year US Treasury bond rose to 4.96 per cent, a 16-year high during the day.
“The RBI was in the market. They could have sold around $200 million-$300 million,” Anindya Banerjee, vice president- Currency Derivatives & Interest Rate Derivatives at Kotak Securities, said. “The RBI is present in all the markets. Over the near term, we expect the range bound trading to continue within a range of 83.00 and 83.50 on spot,” he added.
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On the other hand, the yield on the benchmark 10-year government bond settled 2 basis points higher at 7.37 per cent tracking the rise in US Treasury yields, dealers said. The benchmark yield touched the day’s high of 7.38 per cent. It settled at 7.35 per cent on Wednesday.
Market participants said that the yield did not rise further due to the fall in overnight indexed swap rates during the day. Dealers said traders received fixed rates at 6.84 per cent in the 5-year segment. The 5-year OIS rate opened at 6.84 per cent tracking the rise in US Treasury yields, however, it settled at 6.80 per cent on Thursday. On Wednesday, it settled at 6.76 per cent.
“In the morning, the yields opened higher tracking US yields, but then there was some receiving of fixed rates in the OIS market at technical levels which weighed on the bond yields,” a dealer at a primary dealership said.
Additionally, dealers said that insurance companies stepped up purchases of 14-year government bonds limiting the losses.
Meanwhile, market participants expect the RBI to issue notification on open market operation (OMO) sales by the end of October. They speculate that the central bank might conduct an OMO auction in the first week of November in multiple tranches of 10,000 crore. The amount is expected to be between Rs 50,0000-70,000 crore.
“The RBI should announce the OMO by October end, and we expect the auction in the first week of November,” a dealer at a primary dealership said. “The auction should be in 5-7 tranches of 10,000 crore,” he added.
The RBI Governor Shaktikanta Das had said in the monetary policy statement that the central bank might conduct open market operations to mop up excess liquidity. The Reserve Bank of India injected Rs.2,987 crore in the banking system on Wednesday.
The liquidity has largely remained in deficit since September 15. The deficit liquidity neared Rs. 1.47 trillion on September 19, the highest since January 29, 2020, when the banking system liquidity deficit went up to Rs. 3 trillion
