Indian rupee: the rupee ends stable after rising; gilts win on hope of RBI support

NEW DELHI: The rupee largely stabilized against the US dollar on Thursday, as the national currency consolidated after strongly strengthening against the greenback on Wednesday, dealers said.

The rupee on Thursday stood at 74.8600 per dollar compared to 74.8700 per dollar on Wednesday.

Dealers said trading volumes were down after a recent wave of volatility and market participants were unwilling to take big bets before key near-term events, including the upcoming monetary policy statement. from the US Federal Reserve on November 3.

The Federal Open Market Committee’s statement is the next big thing for markets around the world, especially as U.S. central bank officials have indicated that the world’s largest economy may begin to cancel its extraordinary easing program. quantitative from next month.

A modulation of the deluge of liquidity triggered by the US Fed since March 2020 to deal with the Covid-19 crisis could lead to a reduction in some of the huge flows of foreign funds that Indian markets have enjoyed for some time now.

Purchases of dollars by some banks (likely foreign and state lenders) for oil marketing companies kept the rupee under pressure on Thursday, traders said.

With global crude oil prices continuing to hover around multi-year highs, this trend is expected to continue.

The rupee on Thursday traded in a range of $ 74.89 / 1 to $ 74.70 / 1.

“In the future, we see largely a narrow range for the rupee,” said a dealer at a large state-owned bank.

“October has been a volatile month; at one point, the rupee had depreciated by more than 1.5%. Now some of that has been recovered; we are down around 0.8% so far in the month, but the overall bias will be a depreciation bias mainly due to crude oil, ”he said.

Crude oil for November delivery on the New York Mercantile Exchange rose $ 0.91 or 1.1% to $ 83.87 per barrel on Wednesday, with the upcoming month’s futures contract closing at its highest level in seven years.

Brent crude oil futures for December delivery rose $ 0.74 to end the day at $ 85.82 per barrel, the highest close in 3 years.

Government bonds rose on Thursday, with the 10-year benchmark yield 6.10% 2031 falling 3 basis points from the previous close to 6.34%. The prices and yields of bonds move in the opposite direction.

The slight rally in bonds was based on hopes that the Reserve Bank of India would step in to support the market after a surge in yields earlier this week.

With the recent rise in crude oil prices bringing fears of higher inflation to the fore, some bond traders have worried about the possibility that the RBI will tighten interest rates sooner rather than later.

On Wednesday, the yield of the 10-year benchmark paper hit the psychologically significant level of 6.40%, the highest level for a 10-year bond in 18 months.

“There appears to be a clear belief in the market that the RBI will step in at 6.40% for the 10-year bond,” said a senior treasury official at a large foreign bank.

“They could issue a statement on market conditions or just come up with a Twist trade that includes the 10-year bond. Yes, the RBI has let bond yields align with a more standardized policy, but they will not be happy with an immediate rise in yields to 6.50%, ”he said.

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