Mumbai: The rupee pared early losses and strengthened on Friday after the dollar took a beating globally following an announcement by the Chinese central bank that it will remove the floor on lending rates offered by that nation’s financial institutions.
The rupee closed at 59.35 per dollar, up 0.55% from the previous close of 59.68. The local currency, which opened at 59.72, tested a low of 59.87 in the first half of day.
Bond yields eased marginally. The yield on the most traded 8.33% bond maturing in 2026 rose to 8.2% intra-day before easing a bit to 8.078%, down 0.93% from the previous close. Bond yields and prices move in opposite directions.
China said it will remove the floor on lending rates offered by financial institutions as economic growth slows and authorities push forward with measures giving its banks more freedom to set borrowing costs, Bloomberg reported.
The People’s Bank of China will also remove the cap on lending rates offered by rural cooperatives, while maintaining its differentiated mortgage policy, according to a statement on its website on Friday. The changes are effective Saturday.
The announcement sent a positive signal to Asian markets. The dollar index, which measures the US currency’s strength against major currencies, was trading at 82.649, down 0.21% from the previous close.
“China’s announcement gave a beating to the dollar, and the rupee, along with other Asian currencies, gained from this,” said Naveen Raghuvanshi, dealer at Development Credit Bank Ltd in Mumbai. Most Asian currencies gained on Monday.
Since January this year, the rupee has weakened 7.34%, making it the biggest loser among Asian currencies during that period. The rupee has gained 0.47% this week.
India’s benchmark Sensex closed 0.11% up at 20,149.85 points on the BSE, while the broader Nifty ended 0.15% down at 6,029.20.
Call money rates eased from the high levels seen early this week. The call rate stood at 6%, down 4% from the previous close of 6.25%. Call money rates had touched a peak of 9.25% in the first half of the week.