Rupee hits two-week low against US dollar, bond yield at two-week high

Mumbai: The Indian rupee on Tuesday hits over two-week low against the US dollar after the country’s trade deficit widened to a three-year high on higher oil and gold imports.

At 12.52pm, the home currency was trading at 63.84 a dollar, down 0.55% from its Monday’s close of 63.49. The rupee opened at 63.63 a dollar and touched a low of 63.91, a level last seen on 29 December 2017.

Trade deficit widened to $14.88 billion in December as compared with $10.50 billion from a year ago, government data showed on Monday. Merchandise imports surged nearly 21.1% last month year-on-year to $41.90 billion. Meanwhile, exports grew 12.4% on-year to $27.03 billion.

Bond yield rose over 10 basis points to hit two-week high after Reserve Bank of India (RBI) deputy governor Viral Acharya said it can’t repeatedly manage the interest rate risks of lenders, as banks suffer from a bond market rout into its sixth month.

The regular use of regulatory help isn’t desirable from the point of view of efficient price discovery in the bond market and effective market discipline, Bloomberg reported, quoting Acharya.

Also, worries of rising inflation and speculation that the government may miss its deficit target after international crude oil prices hit $70 a barrel will give less space to RBI to cut rates in the near term.

RBI will announce its next bi-monthly policy on 7 February where most analysts believe there will be no change in rates. However, some analysts expect possibility of increase in rates. Traders are also cautious ahead of the Union budget on 1 February.

The 10-year bond yield was at 7.377%, a level last seen on 2 January, compared to its previous close of 7.269%. Bond yields and prices move in opposite directions.

The benchmark Sensex rose 0.11%, or 39.83 points, to 34,883.34. So far in 2018, it has gained 2.5%.

So far this year, rupee gained 0.6%, while foreign investors bought $254.60 million and $520.10 million in equities and bonds, respectively.

Asian currencies fell. Japanese yen was down 0.33%, South Korean won 0.18%, Philippines peso 0.14%, Singapore dollar 0.09%, Thai baht 0.05% and China offshore fell 0.05%.

The dollar index, which measures the US currency’s strength against major currencies, was trading at 90.477, down 0.55% from its previous close of 90.974.livemint

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