Indian government bond yields rose for the tenth straight week, logging the worst losing streak in three decades, as elevated crude oil prices and rising global yields affected sentiment.
The yield on the benchmark 10-year government bond settled at 7.47 per cent against the previous close of 7.46 per cent. During the week, yields rose by 10 basis points.
The rupee also fell for a second consecutive session as crude oil prices and risk aversion weighed on the domestic currency, offsetting support from easing expectations of further US Federal Reserve rate hikes.
The local currency settled at 94.94 per dollar, against the previous close of 94.83 per dollar.
The currency opened marginally higher at 94.79 per dollar, but weakened during the session to touch a low of 94.98. The rupee moved marginally in the week, up 0.02 per cent, after rising 1.4 per cent the previous week.
Another factor weighing on the currency was the risk aversion in global markets as investors pulled back from technology stocks amid concerns over elevated valuations of companies linked to artificial intelligence (AI). The sell-off in equities and increased demand for safe-haven US Treasuries added to pressure on emerging-market currencies.
India’s foreign exchange reserves fell $5.01 billion to $721.02 billion in the week ended October 16, according to the latest RBI data. In the past six weeks, reserves have fallen $65 billion after touching a record high of $785.7 billion in the week ended September 4.
During the reporting week, foreign currency assets, the largest component of reserves, declined $5.76 billion to $591.85 billion. Gold reserves rose $706 million to $105.80 billion, while Special Drawing Rights edged up $30 million to $18.58 billion. India’s reserve position with the International Monetary Fund rose $11 million to $4.79 billion.
“The rupee slipped for a second straight session as higher crude prices and a stronger US dollar kept pressure on emerging-market currencies. Risk-off flows and market unwinding added to the weakness, though the currency later steadied and moved in a narrow band in the later part of the day,” said Dilip Parmar, senior research analyst at HDFC Securities.
“In the near term, the spot rupee is capped at 95.30, with initial support at 94.70,” he added.
The rupee has appreciated by 0.93 per cent so far in October, whereas it has depreciated by 0.14 per cent in the current financial year.
The rupee had strengthened to a six-week high of 94.30 per dollar on Thursday, supported by the unwinding of dollar-long positions following the RBI’s recent forex measures and residual flows linked to Jio Platforms’ initial public offering. However, dollar purchases by importers and renewed demand for the greenback pared the gains.
Market participants said dollar purchases by state-owned banks on behalf of oil marketing companies, reportedly for the RBI, kept the dollar well bid after the initial support from IPO-related flows faded.
“SBI has been buying dollars for oil companies on behalf of RBI keeping the dollar well bid once the fall in rupee came after the initial IPO euphoria,” said Anil Kumar Bhansali, head of treasury and executive director at Finrex Treasury Advisors LLP.
The rupee is likely to remain under pressure if crude prices stay elevated, with market participants expecting it to weaken towards 95.25 per dollar on Monday if the RBI refrains from intervening in the spot market.
