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With crude prices hardening and concerns over ebbing liquidity, the rupee dropped to its lowest level since April even as bond yields continued to rise, and equity markets tumbled shrugging off Moody’s revised rating outlook for India.
The rupee saw its biggest single-day drop in nearly six months losing 54 paise on Wednesday against the US dollar to end at 74.98. This was its lowest closing since April 23.
Brent crude touched $81.5 a barrel in the international market, pushing up the yield on the 10-year government bond to 6.28 per cent on Wednesday against Tuesday’s close of 6.26 per cent.
Benchmark indices ended nearly one per cent lower on Wednesday amid profit-booking. The BSE Sensex closed at 59,189.73, down 555.15 points or 0.93 per cent.
Crude flares up
“The rupee weakened against the dollar today because Brent crude prices moved to a near-three-year high, which prompted some banks to buy dollars on behalf of oil marketing companies.
“The dollar also rose against major currencies as investors turned focus onto the US’ September non-farm payrolls report, due on Friday, for cues on when the US Federal Reserve may start tapering asset purchases,” said a note by IFA Global.
Multiple factors
“A combination of rising oil prices, fear of liquidity ebbing due to central bankrolling back easing measures, rising bond yields, and weakness in stocks, all had a negative impact on the rupee,” said Anindya Banerjee, DVP, Currency Derivatives and Interest Rate Derivatives at Kotak Securities.
Market participants are now waiting for the Monetary Policy statement on Friday to see if it highlights concerns over a spike in inflation or announces measures for liquidity normalisation.
Vinod Nair, Head of Research at Geojit Financial Services, said: “The spike in crude prices is spooking the Indian market while inflation is affecting US bond yields. The RBI commenced its three-day MPC meeting... the central bank is expected to keep rates unchanged, however, it is likely to announce measures to gradually pump liquidity out of the economy.”
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