Rupee closes lower against US dollar, bond prices recover
Mumbai: The Indian rupee pared some of its losses, but still closed marginally weaker against the US dollar on Friday, tracking losses in the local equity markets.
The rupee closed at 64.06, down 0.06% from its previous close of 64.03. The home currency opened at 64.12 and touched a low of 64.20 a dollar.
The 10-year bond prices recovered from its morning losses after Reserve Bank of India (RBI) rejected all bids at the weekly auction. The government did not sell any bonds at the scheduled weekly auction, RBI said without giving any reasons.
The 10-year bond yield ended at 7.553%, down 5 basis points from its previous close of 7.605%. Bond yields and prices move in opposite directions.
Earlier in the morning, rupee and bond prices fell after the government revised upward its fiscal deficit target for fiscal year 2019 to 3.3% against the earlier target of 3%. The government also breached its FY17 target which was at 3.2%, the revised estimate is now at 3.5%.
Apart from wider fiscal deficit, fears of a pick-up in inflation and rising US bond yields also dented sentiment.
Benchmark Sensex index fell 2.34% or 839.91 points to 35,066.75. So far this year, Sensex has risen 4%.
“While policy makers have changed the glide path for fiscal consolidation, we think that the overall impact on macro stability will be manageable. The budget seems neutral for equities but near term headwinds for bonds will remain,” said Morgan Stanley Research in a note to its investors.
According to a CNBC report, RBI may consider debt purchases via open-market operations and buying in the secondary market to support the government’s borrowing program.
Since the beginning of this year, the rupee fell 0.2%, while foreign institutional investors have bought $2.04 billion from local equity and $1.47 billion in debt markets.
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