The rupee weakened on Thursday, reversing gains, on concern that foreign investors would sell the nation’s financial assets after Reserve Bank of India governor Duvvuri Subbarao said inflation must ease before the central bank can reduce borrowing costs.
The currency declined before a government report tomorrow that economists in a Bloomberg survey said may show wholesale prices rose 9.75 per cent last month, versus 9.78 per cent in August. This is sustaining pressure for higher interest rates, even as consumer demand wanes and threatens growth. The rupee gained earlier on optimism policy makers would contain the debt crisis in Europe.
“It might be difficult for the currency to maintain sustained gains in the short term amid prevailing global uncertainties and rising domestic concerns around growth and inflation,” L Subramanian, a currency analyst at ICICI Bank in Mumbai, wrote in a note on Thursday.
The rupee weakened 0.3 per cent to 49.1250 per dollar in Mumbai, according to data compiled by Bloomberg.
The European Central Bank said forcing investors to take losses in euro-area bailouts risks financial stability. European Commission President Jose Barroso yesterday called for a “coordinated approach” to recapitalise the region’s banks.
Offshore forwards indicate the rupee would trade at 49.78 to the dollar in three months, compared with expectations for a rate of 49.61 yesterday. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in dollars.
BONDS RECOVER
Government securities recovered marginally on fresh buying from banks and companies.
The 7.80 per cent government security maturing in 2021 recouped to Rs 94.11 from Rs 94.04, while its yield eased to 8.73 per cent from 8.74 per cent yesterday. The 8.13 per cent government security maturing in 2022 also rebounded to Rs 95.78 from Rs 95.6325, while its yield declined to 8.74 per cent from 8.76 per cent previously.
The 8.08 per cent government security maturing in 2022 rose to 95.45 from Rs 95.3250, while its yield moved down to 8.74 per cent from 8.76 per cent. The 7.83 per cent government security maturing in 2018, the 7.59 per cent maturing in 2016 and the 8.28 per cent maturing in 2027 settled up at Rs 95.67, Rs 96.02 and Rs 94.7450, respectively.
The Reserve Bank of India, under the Liquidity Adjustment Facility, purchased securities worth Rs 55,730 crore from 19 bids at one-day repo auction at a fixed rate of 8.25 per cent.
CALL RATE DECLINES
The call rate declined further on the overnight call money market on Thursday on surfeit liquidity in banking system and lack of demand from borrowing banks. The overnight call money rate moved in a range of 8.35 per cent and 7.80 per cent before concluding at 8.15 per cent, down from overnight close of 8.30 per cent.
