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Rupee slips past 66/$1, bond yields spike on hawkish RBI minutes

The Indian rupee weakened past Rs66/$1, slipping to a fresh 1-yr low after the unexpectedly hawkish comments made by the central bank in its minutes released yesterday. The rupee was trading at 66.04, down by 24paise against the US dollar. The Indian rupee opened 29paise down at 66.08 against the US dollar today.

Yields on the benchmark 10-yr government bonds stood at 7.79%, up 15bps from its previous close of 7.63, a level last seen on 26th February 2016.

Viral Acharya, a deputy governor at the central bank and a member of the panel, said he would “decisively” vote for a beginning of “withdrawal of accommodation” in the next monetary policy meeting in June, adding that it was also important to see some data on growth.

The RBI this month kept its policy repo rate unchanged at 6% for the fourth straight meeting and retained its “neutral” stance. While 5 members of the MPC had voted in favour of the decision, one member, Micheal Patra recommended a 25bps hike in the repo rate.

Both the rupee and bonds were already under pressure due to the spike in global crude oil prices, which could lead to higher inflation and widening of current account deficit (CAD). Meanwhile, the slowing pace of capital inflows into equities and bonds further added to the pressure.Since start of April, foreign investors have sold nearly $500 million in local equity and debt market combined.

RBI’s reference rate for the dollar stood at 65.78 and for Euro stood at 81.38. While the RBI’s reference rate for the Yen stood at 61.22, the reference rate for the Great Britain Pound (GBP) stood at 93.41.