Forex- Rupee Inches Growth On Dollar; Lack of OMO Management By The RBI Disappoints Gilts:
The marginally strengthening rupee against the dollar, ended with a depreciation as dealers sold their long term investments in favour of the rupee. The rupee's strength was further weakened by the purchase of the dollar by state-owned banks for oil importers. The minute growth in rupee as shown in the low of 74.69/1 USD on Friday morning came to a close with a high of 74.94/1 USD. The early strength was due to the overnight fall in crude oil prices crashing the price per barrel by 1.1% on Thursday, settling the price to 82.50 rupees per barrel. This was seen in the December delivery in the New York Mercantile Exchange, as well as a similar showing in the Brent Crude.
The weakening began due to the surge in crude oil prices in October, occurring as a result of the shortage of coal and natural gas, in the outstripping global demand. India, being the third largest importers and consumers of crude oil, raised concerns regarding the growing domestic inflation and worsening trade deficit. The increased crude prices tightened the domestic supply. The barrage upon the rupee came to halt as the dollar index dropped from its highs. Coming from a high of 93.79 to 93.61.
The recent increase in yield of the government bonds rose on the decade benchmark by 2 basis points, from 6.1% to 6.36%, as per the 2031 paper regarding benchmark growth. The motivated traders were left high and dry as the RBI chose not to release any new bonds based on the projections, even though there was a large increase in volatility in the market. The projections caused traders to reduce their risk by decreasing the exposure of their portfolio ahead of the Monetary Policy Committee's meeting.
With input from the Economic Times
Written By: Arjun Kulkarni
Edited By: Ronojoy Borpujari