Indian rupee off record lows on RBI intervention; bond yields rise

The Indian rupee gradually recovered after touching a record low on Tuesday, after the central bank intervened while bond yields edged higher tracking the uptick in global crude oil prices.

The partially convertible rupee was trading at 77.63/64 per dollar by 0805 GMT compared with its close of 77.45 on Friday. The rupee touched a record low of 77.7975 during the session.

Traders said the central bank started selling dollars via state-run banks around 77.75 rupee levels helping the currency regain some ground.

"Given that the RBI has ample FX reserves, we expect the rupee to remain more stable and weaken less than most other EM currencies against the greenback over the next couple of years," Adam Hoyes, assistant economist at Capital Economics, said in a note.

Traders said the RBI has been active in both spot and futures markets in recent weeks to help limit sharp volatility in the rupee.

"Rupee fell to a fresh all-time low as broader strength in the dollar continued and also as global crude oil prices continued to trade higher," said Gaurang Somaiya, forex analyst at Motital Oswal Financial Services.

"We expect the momentum for the USDINR to remain positive and quote in the range of 77.40 and 78.20."

Analysts said the recent uptick in global and domestic inflation had added to bearishness on the currency while also pushing up bond yields.

India's annual wholesale price inflation accelerated to 15.08% in April from the previous month's 14.55%, remaining in double-digits for the 13th month in a row, government data showed on Tuesday.

Consumer price index-based inflation in April rose more than expected to 7.79% from a year earlier, remaining above the central bank's tolerance band of 6% for a fourth month in a row, data last week showed.

Economists believe the high inflation print may force the RBI's hand into raising rates yet again in its June policy review after having unexpectedly raised it by 40 basis points in an out-of-turn meeting earlier this month.

India's benchmark 10-year bond yield was trading at 7.36%, up 4 basis points on the day.

Brent crude futures fell 18 cents, or 0.16%, to $114.06 a barrel by 0726 GMT.

The rally in Indian shares after losses in recent sessions helped prevent a further slide in the rupee. The benchmark BSE share index and the broader NSE index were both up more than 2% each.

Foreign funds, however, have been selling India's stocks and debt. They are net sellers of more than $20 billion worth of shares and of around $2 billion in debt so far in 2022.

 

(Editing by Jacqueline Wong)