The prospect of a rate hike weighed on the rupee as it closed 29 paise weaker at 62.12 against the dollar.

According to the data released on Thursday, the country’s factory output contracted for the first time in four months in October and retail inflation rose to its highest since January 2012. This is likely to drive the RBI to maintain its hawkish stance on key interest rates in its monetary policy due on December 18.

A higher interest rate is likely to impact the growth in credit demand. The October industrial production declined 1.8 per cent year-on-year and the November CPI (consumer price index) inflation jumped to 11.24 per cent.

The RBI Governor Raghuram Rajan maintained that the central bank is not comfortable with the current level of inflation and would carefully calibrate its monetary policy.

The rupee shed 30 paise to 62.13 per dollar in the opening trade against the previous close of 61.83 on the back of weakness in the domestic equity market and dollar demand from importers.

Call Rates and G-Secs

The inter-bank call money rate, the rate at which banks borrow from each other to meet their short-term requirements, ended higher at 8 per cent from Thursday’s close of 6.85 per cent. The 10-year benchmark 7.16 per cent government security (G-sec), which matures in 2023, ended weaker at Rs 86.99 from Rs 87.42. Yield on the security hardened to 9.25 from the previous close of 9.18 per cent. The widely traded 8.83 per cent G-Sec, which also matures in 2023, closed higher at 8.91 per cent from 8.85 per cent.

(This article was published on December 13, 2013)
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