Rupee, bond prices gain as retail inflation eases below RBI target
At 9.15am, the rupee was trading at 71.75 a dollar, up 0.65% from its Wednesday’s close of 72.19. The currency opened at 71.70 per dollar
Mumbai: The Indian rupee and 10-year government bond prices on Friday rose after retail inflation for August fell below the Reserve Bank of India’s (RBI) medium term target of 4% for the first time in 10 months. At 9.15am, the rupee was trading at 71.75 a dollar, up 0.65% from its Wednesday’s close of 72.19. The currency opened at 71.70 per dollar. The 10-year bond yield stood at 8.081%, from its previous close of 8.134%. Bond yields and prices move in opposite directions.
Markets were closed on Thursday on account of Ganesh Chaturthi.
Consumer price inflation was at 3.69%, below the RBI’s 4% medium-term target, which increased possibility that the central bank will keep interest rates on hold in its next policy review meeting on 5 October. RBI has raised its benchmark rate by a total of 50 basis points at its past two meetings to 6.5%.
“Persistent volatility in food inflation eased the overall CPI reading, as excluding vegetables the CPI remained elevated at 4.8% yoy, tad lower than Jul’18 reading. Core inflation remained elevated at 5.9% yoy, with currency depreciation, pipeline inflation from rising input prices, rising household inflation expectations (based on RBI survey), and improvement in demand conditions the core inflation pressure is likely to intensify”, said Dhananjay Sinha, head of research, economist and strategist, Emkay Global Financial Services.
“Urban core CPI has increased at a much faster pace than rural CPI, which signifies relatively stronger improvement in demand in urban areas vis-à-vis rural areas. This is also reflected in IIP numbers, widening Current Account Deficit (CAD) and strong retail credit growth of 16.7% yoy in Jul’18. Based on last two months CPI reading, RBI might pause in Oct’18 policy with a more hawkish policy on rising currency depreciation risk”, Sinha added.
Traders await details on possible steps by the government to halt decline in the currency. On Wednesday, Bloomberg reported that the Prime Minister Narendra Modi to review health of the economy during the weekend and may announce measures on rupee and oil after meeting.
So far this year, the rupee has weakened 10.9%, while foreign investors have sold $731.10 million and $6.37 billion in equity and debt markets, respectively.
Benchmark Sensex Index rose 0.59% or 221.33 points to 37,939.29. Since January, it has gained 10.75%.
Asian currencies were trading higher. South Korean won was up 0.21%, Philippines peso 0.06%, Malaysian ringgit 0.06%, Taiwan dollar 0.06%, Thai Baht 0.06%, Indonesian rupiah 0.05%. However, China offshore and China renminbi were down 0.05% each.
The dollar index, which measures the US currency’s strength against major currencies, was trading at 94.522, down 0.01% from its previous close of 94.518.
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