Mumbai: The rupee on Friday closed marginally lower against the US dollar after local equity markets fell eight out of eleven trading sessions.
The home currency closed at 64.61, down 0.08% from its Thursday’s close of 64.56. The rupee opened at 64.65 a dollar. and touched a high and a low of 64.55 and 64.67 respectively Year-to-date, it gained 5.2%.
Foreign institutional investors (FIIs) were net sellers for the eight consecutive session and sold nearly $581.86 million in the local equity markets in this period. So far this year, they have bought $6.35 billion and $7.12 billion from local equity and debt markets, respectively.
The benchmark Sensex index fell 0.19% or 57.09 points to closed at 29,365.30. Since 5 April, Sensex fell over 2% while so far this year, it has risen 10%.
India’s 10 year bond yield gained five out of six sessions after minutes of the Reserve Bank of India signaled possibility of rate hike.
Five out of six members of the monetary policy committee (MPC) were concerned about an increase in inflation, and one even suggested a 25 basis point increase in the repurchase, or repo, rate, according to the minutes of the panel’s last meeting, released on Thursday.
The 10-year bond yield closed at 6.924%, compared to its previous close of 6.877%. Bond yields and prices move in opposite directions.
“Overall, the minutes suggest that there are growing divergences within the MPC with two out of six members biased towards rate hikes. The call by one of the members (Michael Patra) for a pre-emptive rate hike is a surprise. Although we believe this will be necessary in 2018, we did not expect it to be mentioned just yet”, said Nomura Research in a note to its investors..
“We believe that inflation will remain benign at sub-4% levels in Q2 but will rise sharply to 5.5-6% by Q4 2017 and in H1 2018 as cyclical factors such “as a narrowing output gap, stronger rural wage growth and adverse base effects push it higher. We have therefore changed our policy call and we now expect a cumulative 50bp rate hike in 2018. We also believe that surplus liquidity will persist and hence expect a 100bp cash reserve ratio hike in H2 2017”, the report added.
Investors were cautious ahead of the French election which will be held on Sunday and the two leading candidates will run off in a winner-takes-all contest on May 7.