Notwithstanding the geo-political tensions between the US and Syria and the prospective tapering of quantitative easing by the US Fed, the rupee gained upwards of 100 paise to close stronger at 66 on Thursday.

The rupee had closed at 67.10 on Wednesday.

The sentiments in the equity and currency markets were buoyant a day after the new governor of the Reserve Bank of India, Raghuram Rajan, announced measures that pepped up the equity markets.

The benchmark BSE Sensex gained over 2 per cent or 412 points in the day to close at 18,979.76 points.

Reversal of capital-control measures

RBI had on Wednesday partially rolled back some of the curbs imposed in August. Relaxing the curbs on outward investments, the apex bank said a company will be allowed to invest up to 400 per cent of its net-worth provided it has raised the funds through external commercial borrowings (ECBs).

The central bank also opened a special concessional window for swapping foreign currency non-resident banks (FCNR (B)) deposits at a fixed rate of 3.5 per cent per annum.

“The reversal of capital-control measures by the central bank along with the positive sentiment on the measures by the new RBI Governor contributed to the rupee recovery,” said S. Srinivasaraghavan, head of treasury at Dhanlaxmi Bank.

Crude, gold prices

However, according to economists, the surge in crude and gold prices, which constitute India’s biggest imports, is biggest worry for the Indian economy.

In recent weeks, many rating agencies have aired their concerns that the slowdown in domestic growth threatens to derail the fiscal austerity plans.

Call rates firm; Bond yields up

The inter-bank call money rate, the rate at which banks borrow money from each other to meet their short-term fund requirements, closed flat from its previous close of 10.25 per cent.

The 7.16 per cent government bond, which matures in 2023, closed slightly lower at Rs 91.75 from the previous close of Rs 91.95. Yields hardened to 8.42 per cent from previous close of 8.38 per cent.

Gilt yields

Indranil Sen Gupta, Economist, Bank of America Merrill Lynch says that gilt yields are peaking, despite the panic sell-offs. In a note to clients, he said they expect 10-year yields (currently at about 8.63 per cent) should come to about 8 per cent by March 2014.

(This article was published on September 5, 2013)
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