Rupee, bonds rise on geopolitical relief, trim gains post RBI policy

The rupee strengthened and government bond yields eased on geopolitical relief and lower crude prices before both pared gains after the RBI's policy announcement and Governor Sanjay Malhotra's remarks

The rupee strengthened against the US dollar on Wednesday, although it surrendered part of its early gains after the Reserve Bank of India’s (RBI’s) monetary policy announcement amid profit booking and selling in domestic markets, dealers said. 

The domestic currency opened sharply higher, tracking positive geopolitical developments overnight, before the market's focus shifted to the RBI's policy decision. The rupee strengthened past the 95-per-dollar mark to touch an intraday high of 94.89 per dollar. It later pared some of its gains to settle at 95.13 per dollar, compared with its previous close of 95.39 per dollar. 

“Overall it was a neutral policy from a rupee perspective. Section of market expected a hawkish tone. Since that was absent, we saw the rupee bounce back again,” said Abhishek Goenka, founder and chief executive officer of IFA Global. 

 

The yield on the benchmark 10-year government bond fell 4 basis points to close at 6.77 per cent. It had declined by as much as 6 basis points in early trade, tracking lower crude oil prices, before paring gains after RBI Governor Sanjay Malhotra said the central bank would act on policy rates if core inflation were to heat up. 

"The policy was neutral to dovish, which is why the market rallied after the policy announcement. But there is little room left for the RBI to be more dovish. The only thing the market picked up on was the Governor’s comment during the press conference that the RBI would have to act if core inflation goes up. That triggered the sell-off,” said a dealer at a primary dealership. 

Over the past year, the rupee has depreciated 7.7 per cent against the US dollar, while the yield on the benchmark 10-year government security has risen by 44 basis points. In the current financial year, the rupee has declined 0.33 per cent, while the benchmark 10-year bond yield has eased by 26 basis points. So far in August, the rupee has appreciated 0.28 per cent and the benchmark bond yield has fallen by 7 basis points.