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The rupee hit an all-time closing low and the yield on the benchmark 10-year Indian government bond rose to a four-month high on Thursday amid a surge in the dollar index and US Treasury yields, prompting the Reserve Bank of India (RBI) to intervene in the foreign exchange market to curb volatility.
US Treasury yields rose after meeting minutes from the Federal Reserve stated that most policymakers felt that inflation risks could require further interest rate hikes. The yield on the 10-year US Treasury note surged to a 15-year high of 4.31 per cent on Thursday. The Fed’s hawkish tone also led to a rise in the dollar index to 103.53.
“The rise in US bond yields and the weakness of the Chinese currency were the major driving factors,” said Anindya Banerjee, vice president, currency derivatives and interest rate derivatives, Kotak Securities. “We could see a range of 82.70-83.50 by the end of this month. If the RBI had not intervened, the rupee would have depreciated more to breach the all-time low level of 83.29 a dollar. They [the RBI] could have sold $2-$3 billion,” said Banerjee.
The Indian unit was the fourth worst — after the Malaysian ringgit, Philippines peso, and South Korean won — among Asian currencies on Thursday.
“The rupee should peak at Rs 83.50 a dollar. The RBI will not allow any sharp depreciation. And if at all, the central bank will let the rupee depreciate way gradually and orderly,” Naveen Singh, head of trading and executive vice president at ICICI Securities Primary Dealership, said.
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