Rupee hits new low of 84.85 per dollar a day after RBI guv's appointment

Foreign exchange market participants said that state-owned banks sold dollars on behalf of the RBI at 84.85 per dollar to prevent further depreciation of the exchange rate

The rupee slumped to a new low of 84.85 per dollar while government bond yields softened on Tuesday, a day after Revenue Secretary Sanjay Malhotra was appointed the new Reserve Bank of India (RBI) governor.   The appointment fuelled expectations of a potential rate cut by the RBI’s Monetary Policy Committee in February, said market experts. Foreign exchange traders expect Malhotra to adopt a more flexible approach to policies concerning the dollar-rupee exchange rate.   The rupee plunged 12 paise, or 0.14 per cent, to settle at 84.85 a dollar, as against Monday’s close of 84.73 a dollar. The previous closing low -- 84.74 a dollar -- was witnessed on Friday. 

 

   The yield on the benchmark 10-year government bond settled at 6.70 per cent, as against 6.72 per cent on Monday.  Foreign exchange market participants said state-owned banks sold dollars on behalf of the RBI at 84.85 per dollar to avoid further depreciation in the exchange rate.   “Everybody was celebrating last evening that someone from Delhi is coming. So that means there is some certainty that there will be a rate cut in February. And the same reason why the rupee depreciated as that is not good for the currency,” the treasury head of a private bank said. “We’ll have to see how dollar strengthening pans out. Today they were selling (dollar) aggressively at 84.50 per dollar,” he added.   The rupee is seen touching 85 per dollar, a psychologically crucial level, by the end of this month.   “The market has already discounted the 85-per-dollar mark by the end of the year. We’ll have to watch what kind of state policies come in the US in January, that will be very important to see,” said another treasury head of a private bank.   The rupee has depreciated 0.42 per cent in December so far. In the current calendar year so far, the rupee has witnessed 1.94 per cent depreciation.  Bond market participants said the outlook for the bond yield remains positive. However, US inflation data, scheduled to be released on Wednesday, and domestic CPI data, to be released a day later, will lend significant cues to the market.