Rupee falls to fresh new low of 82.33 to the dollar

The rupee on Friday plummeted to a new low of 82.33 against the dollar, falling 44 paise from Thursday’s close of 81.88, even as the dollex moved up to trade at levels of 112.40. Concerns around the US Fed increasing the quantum and pace of rate hikes, leaving interest rates elevated for a prolonged period, have rattled investors in the currency and bond markets.

Bonds also sold off sharply in intra-day trades, sending the benchmark yield all the way up to 7.518%, a level last seen on June 17. The yield closed the session at 7.457%, flat compared to Thursday’s close of 7.451%.

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“We remain bearish on Indian bonds. We see the 10-year G-Sec yield rising to 7.75% in FY23 but easing to 7% in FY24,” Indranil Sengupta, head of India research, CLSA, said.

Crude oil prices have gone up after OPEC announced production would be cut by two million barrels a day from November; on Friday, Brent was ruling at levels of $95.69/ barrel, having rebounded from levels of $86 per barrel over the past 10 days or so. The Indian currency has depreciated by about 10% since the start of the year and 3.5% in the last one month alone.

While the Reserve Bank of India is understood to have intervened in the market supplying dollar, dealers said the amount was not substantial.

Experts believe the central bank might not be opposed to a gradual fall in the rupee as it would help exporters. Moreover, the rupee has depreciated less than the yuan has, which is unhelpful given India’s large trade deficit with China.

The yield on the benchmark bond has been rising in the past few sessions especially after it became clear India would not find a place in the global bond index just yet. JP Morgan appears to have refrained from including Indian government bonds in its emerging market local currency debt index just yet.

The jump in crude oil prices has further added to investors’ anxieties as it would mean a widening trade gap. Moreover, the higher interest rates in the US, for a longer period, could impact capital flows to India. The 10-year yield on the US treasury was ruling at 3.8236% on Friday.