Mumbai: The rupee on Friday closed at a fresh record low against the US dollar, while 10-year government bond yield jumped nearly 13 basis points after India’s current account deficit widened to the most in five years. The rupee ended at 72.45 a dollar, down 0.97% from its Friday’s close of 71.74. It opened at 72.11 per dollar. The 10-year gilt yield settled at 8.158% -- a level last seen on 25 November 2014, up from its previous close of 8.03%. Bond yields and prices move in opposite directions.
The Sensex fell 1.22%, or 467.65 points, to 37,922.17. Since January, it has gained 12%.
The current account deficit widened to $15.8 billion in the April-June quarter from a year ago due to a larger trade gap. The CAD widened to 2.4% of gross domestic product (GDP) in April-June, from 1.9% of GDP in the January-March quarter, data released Friday showed.
During the day, the home currency tumbled as much as 1.3% to hit a fresh low of 72.67. However, losses narrowed after a finance ministry official told Bloomberg that the government may take steps, including introducing a deposit scheme for overseas Indians, to stem the selloff.
“The government is worried on rupee fall and its actively working on reducing current account deficit. If needed, govt can think of ways to increase foreign direct investments, foreign inflows. Can take measures like deposit scheme for overseas Indians", reported Bloomberg, quoting a government official.
A fall in the home currency was also due to losses in emerging currencies market as the dollar was boosted by robust US jobs data and risk appetite was hurt by President Donald Trump’s threat to escalate the trade war with China.
The stronger-than-expected August US jobs report showed average hourly earnings accelerated to the fastest pace since 2009, keeping the Federal Reserve on track to lift interest rates this month and making another hike in December more likely.
President Donald Trump said he was ready to impose tariffs on an additional $267 billion of Chinese goods, on top of a proposed $200 billion.
“We expect the rupee to remain under pressure on an intensifying of the emerging markets crisis and fear of a contagion," said Kotak Institutional Equities in a note to its investors. The brokerage firm expects the currency to range 69-74 for the rest of 2018-19.
So far this year, the rupee has weakened 11.5%, while foreign investors have sold $424.80 million and $6.25 billion in the equity and debt markets, respectively.