The rupee weakened for a second day, as Europe’s worsening debt crisis spurred demand for the perceived safety of the dollar over emerging-market assets.
The currency added to last week’s biggest loss in two months as the MSCI Asia Pacific Excluding Japan Index fell. The rupee also declined on concern that accelerating inflation would prompt foreign investors to cut holdings of the nation’s stocks and bonds.
“There is no clarity on whether foreign fund inflows will continue as the overall environment isn’t positive,” said Roy Paul, a deputy general manager at Federal Bank Ltd in Mumbai. “Europe is a concern on the global front and domestically inflation still stays a worry.”
The rupee slipped 0.1 per cent to 44.58 per dollar at the close in Mumbai after falling 0.4 per cent last week, the biggest drop since the period ended May 6, according to data compiled by Bloomberg.
Offshore forwards indicate the rupee would trade at 45.13 in three months, compared with expectations of 45.05 at the end of last week.
BONDS FIRM UP
Government bond prices firmed up on fresh buying support from banks and companies.
The 7.80 per cent government security maturing in 2021, hardened to Rs 97.02 from Rs 96.86 previously, while its yield moved down to 8.25 per cent from 8.27 per cent. The 8.13 per cent government security maturing in 2022, firmed up to Rs 98.33 from Rs 98.22, while its yield eased to 8.36 per cent from 8.38 per cent.
The 7.83 per cent government security maturing in 2018, rose to Rs 97.74 from Rs 97.60, while its yield fell to 8.27 per cent from 8.30 per cent. The 8.08 per cent government security maturing in 2022, the 7.59 per cent government security maturing in 2016, the 8.30 per cent government security maturing in 2040, and the 8.07 per cent government security maturing in 2017, were also quoted higher at Rs 98.00, Rs 97.38, Rs 97.00 and Rs 99.20, respectively.
The Reserve Bank of India, under the Liquidity Adjustment Facility, purchased securities worth Rs 48,855 crore from 27 bids at the one-day repo auction at a fixed rate of 7.50 per cent.
CALL RATE DROPS
The call rate dropped on the overnight call money market today due to lack of demand from borrowing banks. The overnight call money rate settled remarkably lower at 7.70 per cent from the previous close of 9.50 per cent. It moved in a range of 7.75 per cent and 7.45 per cent.
