Mumbai: The Indian rupee on Tuesday weakened past 65-mark against the US dollar, while 10-year bond yield was at a fresh six-month high after international crude oil prices touched a new two-year high.
Analyst believe that a steady rise in oil prices may make it difficult for the government to achieve its fiscal deficit target, and may lead to an increase in inflation which may, in turn, lower the possibility of a rate cut by the Reserve Bank of India (RBI).
The home currency ended at 65.03 against the dollar, down 0.55% from its Monday’s close of 64.68. The rupee opened at 64.63 a dollar and touched a low of 65.07—a level last seen on 27 October.
“India needs to keep a cautious eye on the surge in global crude prices as every $1 per barrel rise in crude prices leads to its import bill rising by $1.33 billion. Also, a rising import bill can put downward pressure on Rupee. India’s import bill rises by $1.03 billion for every 1 Rupee weakening in Rupee vis-a-vis US dollar”, said Ajay Bodke, CEO and chief portfolio manager, PMS Prabhudas Lilladhar.
“In a fiscally constrained environment a weakening Rupee can also lead to higher fiscal deficit if the government decides not to allow OMCs to hike petrol & diesel prices for consumers and decides to absorb the increased fuel import bill”, Bodke added
The 10-year bond yield closed at 6.927%, a level last seen on 11 May, compared to its previous close of 6.858%. Bond yields and prices move in opposite directions.
Brent crude oil hit $64.17 per barrel on Tuesday—a 26-month high—after Saudi Arabia’s King Salman ordered the arrest of ministers, princes and billionaires in an anti-graft drive in the world’s biggest crude exporter.
The benchmark Sensex index fell 1.07% or 360.43 points to closed at 33,370.76 points. So far this year, it has gained 25%.
So far this year, the rupee has gained 4.7%, while foreign institutional investors have bought $6.27 billion and $22.83 billion in equity and debt, respectively.
Asian currencies were trading lower after dollar gained as President Donald Trump called on North Korea to “make a deal” on its missile and nuclear program.
Philippines peso was down 0.39%, Japanese yen 0.33%, Singapore dollar 0.20%, China Offshore 0.18%, Thai Baht 0.1%, China renminbi 0.08%. However, South Korean won was up 0.29%, Taiwan dollar 0.11% and Indonesian rupiah 0.07%.
The dollar index, which measures the US currency’s strength against major currencies, was trading at 95.108, up 0.36% from its previous close of 94.757.