Mumbai: The Indian rupee on Tuesday weakened 0.9%, its steepest fall in eight months, against the US dollar after the country’s trade deficit widened to a three-year high on higher oil and gold imports.
The home currency ended at 64.04 a dollar, down 0.86%, its biggest fall since 18 May 2017, from its Monday’s close of 63.49. The rupee opened at 63.63 a dollar and touched a low of 64.11, a level last seen on 28 December 2017.
Trade deficit widened to $14.88 billion in December as compared with $10.50 billion from a year ago, government data showed on Monday. Merchandise imports surged nearly 21.1% last month year-on-year to $41.90 billion. Meanwhile, exports grew 12.4% on-year to $27.03 billion.
“Overall, these numbers suggest that while exports benefit from a stronger global uptrend and fading domestic constraints, a larger commodity bill (mainly oil) could deteriorate the trade balance anew. December’s numbers also rekindle concerns over the current account balance this year,” said Radhika Rao, economist at DBS Bank Ltd.
“The trailing current account deficit balance has now widened to -2.5% of GDP for the December quarter, worsening from -1.2% in July-September. This suggests that the full-year current account deficit (CAD) might be worse than our forecast of -1.8% of GDP vs -0.7% in FY17 and average between 2-2.2%”, the report added
Bond yield rose over 11 basis points to hit near three-week high after Reserve Bank of India (RBI) deputy governor Viral Acharya said it can’t repeatedly manage the interest rate risks of lenders, as banks suffer from a bond market rout into its sixth month.
The regular use of regulatory help isn’t desirable from the point of view of efficient price discovery in the bond market and effective market discipline, Bloomberg reported, quoting Acharya.
Also, worries of rising inflation and speculation that the government may miss its deficit target after international crude oil prices hit $70 a barrel will give less space to RBI to cut rates in the near term.
RBI will announce its next bi-monthly policy on 7 February where most analysts believe there will be no change in rates. However, some analysts expect possibility of increase in rates. Traders are also cautious ahead of the Union budget on 1 February.
The 10-year bond yield ended at 7.383%, a level last seen on 28 December 2017, compared to its previous close of 7.269%. Bond yields and prices move in opposite directions.
The benchmark Sensex fell 0.21%, or 72.46 points, to 34,771.05. So far in 2018, it has gained 2.5%.
So far this year, rupee weakened 0.2%, while foreign investors bought $254.60 million and $520.10 million in equities and bonds, respectively.