The rupee on Wednesday fell to a four-month low, in line with the US dollar gaining strength across global markets.
The weakness in emerging market currencies and rising geo-political tensions affected the local currency. The partially convertible unit slumped to 61.53 per dollar, its lowest level since March.
The rupee was under pressure due to the strengthening of the dollar after data showed that US services sector activity hit an 8-1/2 year high last month, as well as geo-political concerns over the Russia-Ukraine conflict, said Hariprasad MP, Senior Vice-President and Head – Treasury, Centrum Direct Ltd.
According to reports, the US non-manufacturing index rose in July at its fastest pace since December 2013. The US dollar index, which measures the greenback’s strength against major global currencies, was trading strong at 81.60, up 0.27 per cent against the previous close of 81.32.
The domestic unit opened at 61.06 and ended sharply weaker at 61.53 per dollar.
The Sensex closed Wednesday down 242.74 points or 0.94 per cent at 25,665.27 while the NSE Nifty was down 74.50 points or 0.96 per cent at 7,672. Dealers said, that the RBI was seen intervening to support the domestic unit in afternoon trade.
On Tuesday, the RBI Governor said that the central bank would continue to focus on bringing down inflation to meet its goal of reducing the consumer price index to 6 per cent by January 2016, indicating that there may be no reduction in interest rates in the next two quarters. Markets had interpreted the tone of the statement as more ‘hawkish’ than his June policy statement.
A dealer with a public sector bank said that the RBI was closely monitoring the rupee levels and would intervene if it fell below 62 per dollar.
Call and bond prices
The inter-bank call money rate, the rate at which banks borrow short-term funds from one another to tide over liquidity mismatches, was trading higher at 8.20 per cent from Tuesday’s close of 7.15 per cent.
The RBI Governor, Raghuram Rajan, said the central bank is trying to keep it closer to 8 per cent. The RBI also said the average call volume in July came down by 40 per cent and, hence, it was a thin market, which led to more volatility.
The yield on the 10-year benchmark government bond 8.40 per cent maturing in 2024 increased to 8.62 per cent from Tuesday’s close of 8.61 per cent. The price lowered to Rs 98.50 from Rs 98.60. Bond yields and prices move in opposite directions.