The Indian rupee declined to the lowest level in nine months against the U.S. dollar on Thursday. It is declining as there are growth concerns emerging yet again in response to lockdowns.
Meanwhile, the benchmark 10-year bond yield rose, due to concerns that further strict lockdowns to curb Covid-19 cases could affect economic growth and fuel inflation.
Interestingly, the partially convertible Indian rupee was at 75.14/15 per dollar, as of 07:10 GMT, after reaching 75.32, its worst result since July 2020. The Indian currency ended at 75.06 on Monday.
The forex, as well as debt markets, were closed on Tuesday and Wednesday for local festivals.
HDFC Bank said it expected the Indian rupee to trade in a range of 75-75.50 in the near term due to concerns over surging domestic Covid-19 cases as well as its economic impact.
The country is struggling to deal with the pandemic for a long time. India reported a record 200,000 new Covid-19 cases on April 15. Unfortunately, the country has one of the highest numbers of coronavirus cases in the world and this fact underlines the severity of the problem. India’s financial hub of Mumbai entered a lockdown as many hospitals treating coronavirus patients reported severe shortages of beds. Another problem is the shortage of oxygen supplies.
Rupee and Reserve Bank of India
Traders are closely monitoring the results of the Reserve Bank of India’s (RBI) first 250 million rupees tranche of the G-SAP. The purpose of the G-SAP or government securities acquisition program is to purchase 1 trillion rupees worth of government papers during the April-June quarter.
The announcement of the G-SAP affected the rupee, as it suffered losses in recent days. It makes sense as to buy these bonds the RBI will have to print more money.
The benchmark 10-year bond yield was at 6.04%, up 3 basis points from its previous close after March inflation data. Nonetheless, the traders expect yields to fall depending on the cut-offs set by the RBI at the G-SAP auction.
India’s retail inflation accelerated to a four-month high of 5.52% last month on higher food and transport costs. The inflation rose in response to the surging number of coronavirus cases. The fears of a surge in some commodity prices due to the lockdowns in some states also played an important role.