The rupee was marginally down against the US dollar in afternoon trading on Monday as the greenback strengthened against major global peers in reaction to the interest rate cut by China on the weekend.
Dollar demand from state-owned banks, most likely on behalf of the Reserve Bank of India (RBI), also kept the rupee under pressure.
At 2.30pm the Indian currency was trading at 61.8825 per dollar, down 0.07% from its previous close of 61.83 per dollar. It touched a low of 61.95 per dollar on Monday.
“The dollar’s strength has been the main reason for the rupee’s weakness. But there are also inflows in the market which are being absorbed by state-owned banks,” said a dealer with a US bank.
The dollar index, which measures the US currency’s strength against a basket of currencies, touched 95.50 on Monday, its highest level since September 2003, as an interest rate cut by China on Saturday put that country’s slow economic recovery under the spotlight. The resultant weakness in other Asian currencies also affected the rupee.
The yield on the 10-year bond inched up to 7.76% from Friday’s close of 7.72% in reaction to Saturday’s budget announcement which increased the fiscal deficit target to 3.9% of gross domestic product (GDP) against market estimates of 3.6% to 3.8% of GDP.
“Yields have inched up but there is still widespread expectations that the RBI (Reserve Bank of India) will cut rates further in April which is why yields have not taken a tumble,” said the dealer quoted above.
Bond yields are likely to inch up after finance minister Arun Jaitley on Saturday said he will achieve the fiscal deficit target of 3% by 2017-18, a year later than schedule, citing an increase in public spending required to support economic growth.
Source:livemint.com
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