MY: Rupee getting weaker as Indian equity mkts crash
The rupee started off stable because Asian markets were actually in the green and therefore Asian currencies had shown some kind of stability. But the manner in which the Indian equity markets went from weakness to weakness, one saw the rupee also getting weaker.
Bond market reaction has been muted both to inflation as well as to the rate cut yesterday. One would have thought 0.50 percentage point rate cut will mean that yields on the 10-year will move down at least by a quarter percentage point – nothing of this sort. For a very brief while the yield moved from 6.43%, yesterday’s close, to about 6.26%. That’s not even 20 bps fall and thereafter moved up to 6.3% almost immediately. So there was very rapid profit taking.
This is probably because people are guessing that there is not going to be very good news for the bond markets at least for sometime. Yet another rate action is pretty far away – more importantly there is this huge government borrowing – so rapid profit taking came in and at the moment bonds are actually quoting lower than what they were quoting yesterday.
So the entire rate action has been a non event as far as the bond markets are concerned. There is of course some disenchantment with the kind of bonds the RBI has chosen to buyback but all these are smaller ideas. Basically they are afraid of the fiscal borrowing and therefore the rate action has not brought much joy to the yields going down.
On rupee
The rupee started off stable because Asian markets were actually in the green and therefore Asian currencies had shown some kind of stability. It was expected that the Indian markets with the combination of positive Asian cues and a rate cut will stay in the green – that’s how the rupee started on a firm note. But the manner in which the Indian equity markets went from weakness to weakness, one saw the rupee also getting weaker.
At one point in time the dollar cost almost Rs 52. One understands at that point the big selling that came in was the RBI’s – obliviously one cannot confirm that – but again the dollar became as cheap as 51.85 or thereabouts.
