The 10-year bond yield rose another 3 basis points to hit a fresh 19-month high of 7.475% from its previous day’s close of 7.442%. Bond yields and prices move in opposite directions. Photo: Mint
The 10-year bond yield rose another 3 basis points to hit a fresh 19-month high of 7.475% from its previous day’s close of 7.442%. Bond yields and prices move in opposite directions. Photo: Mint

Rupee weakens against US dollar to 63.61, bond prices fall on fiscal deficit fears

The rupee closed at 63.61, down 0.03% from its Monday's close of 63.59, as traders remained worried that the govt may widen its fiscal deficit target in Budget 2018

Mumbai: Indian rupee and bond prices on Tuesday pared all the losses and closed little changed even as traders remained worried that the government may widen its fiscal deficit target in the budget after the Economic Survey called for a pause in fiscal consolidation.

The rupee closed at 63.61, down 0.03% from its Monday’s close of 63.59. The rupee opened weaker to 63.68 and touched a low of 63.79 a dollar.

The 10-year bond yield closed at 7.434% from its previous day’s close of 7.442%. Bond yields and prices move in opposite directions. Earlier in the day, rupee weakened nearly 0.2% while bond yield rose nearly 3 basis points.

Benchmark Sensex index fell 0.69% to 36,033.73 points. So far this year, it has gained 5.5%.

All eyes are on the last budget before the 2019 general elections that will be presented on 1 February.

Traders will watch fiscal deficit and borrowing target for the next fiscal year. Analysts expect the deficit targets for FY18 and FY19 to be raised to 3.5% and 3.2%, respectively, while the borrowing target will be Rs6.5 trillion next fiscal year compared to Rs6.05 trillion current fiscal year.

“The Economic Survey indicated that a ‘pause’ in fiscal consolidation cannot be ruled out in FY18. It cautioned against ‘ambitious’ consolidation in FY19, as it could hurt credibility, and instead argued for a ‘modest’ consolidation. This reduces the likelihood of a positive surprise in the Budget (fiscal deficit target of 3% of GDP in FY19) and increases the probability of our baseline fiscal deficit projection being announced (3.5% of GDP in FY18, same as FY17, and a lower 3.2% in FY19)," said Nomura Research in a note to its investors.

Globally, the US Federal Reserve will hold a two-day policy meeting, which begins on Tuesday and ends with its statement on Wednesday. This is the final FOMC policy under Janet Yellen and analysts expect more hawkish signals by noting a more upbeat economic assessment and higher inflation measures, Bloomberg reported.

Traders are also cautious before US President Donald Trump speech on Tuesday, which may offer details on infrastructure spending plans.

So far this year, the rupee has gained 0.3%, while foreign investors have bought $1.97 billion and $1.12 billion in equity and debt market, respectively.

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