The rupee strengthened and bond yields softened on Tuesday as a decline in crude oil prices and expectations of fresh dollar inflows following the Reserve Bank of India’s (RBI’s) recent measures eased pressure on the domestic currency. The local unit closed at 95.35 per dollar against the previous close of 95.71 per dollar, recovering from the sharp losses seen a day earlier.
Market participants said a nearly 2 per cent fall in Brent crude prices after signs of a temporary easing in tensions between Iran and Israel improved sentiment. Brent crude futures fell to $92.22 per barrel from $94.23 per barrel the previous day.
“The Indian rupee appreciated as a recovery in risk-on sentiment was driven by a weaker greenback and declining crude oil prices amid hopes of easing geopolitical tensions. Additionally, the resumption of inflows into the debt market, following recent RBI measures, provided further support. In the near term, spot rupee faces resistance at 95.80 per dollar and support at 94.70 per dollar, with the short-term bias remaining constructive for the rupee on expectations of continued inflows,” said Dilip Parmar, research analyst, HDFC Securities.
The central bank last week unveiled a concessional foreign exchange swap facility for overseas borrowings and FCNR(B) deposits, alongside steps to widen foreign investor participation in government securities.
The central bank also allowed banks to exclude positions arising from its newly announced foreign currency swap facilities for FCNR(B) deposits, external commercial borrowings (ECBs) and overseas foreign currency borrowings from the calculation of their net overnight open position (NOP)-INR limits.
Policy measures announced by the RBI and the government to attract foreign capital into government securities and banking channels are expected to bring in $40 billion-$50 billion of inflows.
The yield on the benchmark 10-year government bond also eased by 5 basis points to settle at 6.91 per cent, the lowest since April 21 this year.
“While bond yields have softened, the eventual trajectory will depend on inflation data, particularly CPI. In the near term, improved liquidity should ease pressure on short-term funding costs and money market rates,” said the treasury head at a private bank.
The currency had come under significant pressure in recent weeks amid rising crude oil prices, persistent foreign portfolio outflows and concerns over the economic fallout of the conflict in West Asia. On Monday, the rupee had logged its steepest single-day decline in four weeks as elevated oil prices and a stronger dollar outweighed optimism around the RBI’s measures.
