The rupee dropped for a third day on speculation a widening Budget deficit will weigh on its credit rating, damping demand for the nation’s assets.
The currency touched a two-week low as crude oil prices climbed 0.9 per cent to $106.52 per barrel in New York. The Budget deficit will be 5.9 per cent of gross domestic product this financial year ending March 31, versus the official target of 4.6 per cent, the government said on March 16. Weak public finances are hampering India’s credit ratings, Moody’s Investors Service, Fitch Ratings and Standard & Poor’s said the same day. India is ranked at the lowest investment grade by the three companies.
The rupee declined 0.5 per cent to 50.66 per dollar in Mumbai, according to data compiled by Bloomberg. It touched 50.69, the weakest level since March 7. The rupee has retreated 3.2 per cent this month, the worst performance among the 10 most-traded Asian currencies, excluding the yen. The currency may weaken to 52.50 by mid-year, DBS forecasts.
One-month implied volatility, a measure of exchange-rate swings used to price options, rose to 9.1 per cent, from nine per cent yesterday, a five-month low, according to data compiled by Bloomberg. Three-month onshore forward contracts traded at 51.80 a dollar, compared with 51.50 yesterday, and offshore non- deliverable contracts were at 51.86 from 51.57. Forwards are agreements to buy or sell assets at a set price and date. Non- deliverable contracts are settled in dollars.
Bonds gain for the third day
The government securities (G-Sec) firmed up on good buying support from banks and companies due to lack of demand from borrowing banks amid ample liquidity in the banking system.The 8.79 per cent G-Sec maturing in 2021 hardened further to Rs 102.5750 from Rs 102.45 yesterday, while its yield moved down to 8.39 per cent from 8.41 per cent.The 9.15 per cent G-Sec maturing in 2024, rose to Rs 105.77 from Rs 105.51, while its yield declined to 8.40 per cent from 8.43 per cent.The 8.19 per cent G-Sec maturing in 2020 moved up to Rs 98.57 from Rs 98.5450, while its yield held steady at 8.44 per cent.
The call rate declined on the overnight call money market here on Wednesday. It finished lower at 8.8 per cent from yesterday’s closing level of nine per cent. It moved in a range of 9.8 per cent and 8.8 per cent.
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The yield on the 8.79 percent bonds due November 2021 fell two basis points, or 0.02 percentage point, to 8.40 percent in Mumbai, according to the central bank’s trading system. The rate touched 8.43 percent yesterday, matching this year’s highest level reached on March 16.
Gross domestic product is estimated to rise 6.9 percent in the year ending March 31, Finance Minister Pranab Mukherjee said on March 16. That would be the slowest pace in three years.
The Reserve Bank of India, which boosted the repurchase rate 13 times in the last two years to cool inflation, is scheduled to review borrowing costs on April 17.