Mumbai: The Indian rupee on Tuesday fell, while 10-year bond yield rose as a surprise spike in retail inflation spurred concerns that the Reserve Bank of India (RBI) may wait more for cutting interest rates. Fall in global markets ahead of the US Federal Reserve meeting and the UK referendum also dampened sentiments.
The rupee opened and touched a low of 67.20 a dollar. At 9.13am, the home currency was trading at 67.17, down 0.05% from its previous close of 67.14.
India’s 10-year bond yield was trading at 7.527%, compared with Monday’s close of 7.524%.
“Weak industrial data in the prior week, rise in retail inflation data on Monday and forecast for rise in wholesale inflation of the country will keep pressure on the currency. Additionally, downside in domestic market sentiments coupled with fears of foreign outflows from equities and debt markets will lead to negative movement,” a broker said, requesting anonymity.
Most Asian currencies were trading higher. Japanese yen was up 0.27%, Indonesian rupiah 0.1%, while South Korean and Malaysian ringgit were up 0.05% each. However, Philippines peso was down 0.15% and Taiwan dollar fell 0.05%.
India’s benchmark Sensex index rose 0.34% or 89.13 points to 26,485.90. In the last four sessions, Sensex fell 2% or 600 points. So far this year, Sensex is up 1.3%.
Consumer price inflation accelerated at its fastest pace in 21 months in May, data released on Monday showed, darkening India’s macroeconomic outlook. The Consumer Price Index (CPI) rose 5.76% in May, from a revised 5.47% in April, mainly because of an increase in food prices.
On Friday, the Index of Industrial Production (IIP) shrank 0.8% in April compared with a growth of 0.3% the previous month, driven by a 3.1% contraction in manufacturing activity. While the volatile capital goods segment—a proxy for investment demand in the economy—contracted for the sixth month in a row by 24.9%, consumer durables expanded by 11.8%. However, a fall in production of fast-moving consumer goods, or consumer non-durables, for the 10th time in the last 13 months by 9.7% squeezed consumer goods, which shrank by 1.2%.
The wholesale price inflation (WPI) data for May will be out on 14 June. According to a Bloomberg poll of analysts, WPI will be at 0.44% for May compared to 0.34% in April.
Fed officials will meet on 14-15 June to discuss policy, while the Bank of Japan is likely to stay on hold at its 16 June meeting. The UK referendum on its European Union membership is due on 23 June.
So far this year, the rupee has weakened 1.35%, while foreign institutional investors (FIIs) have bought $2.81 billion from the local equity market and sold $1.17 billion in debt markets.
The dollar index, which measures the US currency’s strength against major currencies, was trading at 94.537, down 0.03% from its previous close of 94.571.