The rupee strikes at the lowest despite presumed intervention; stocks, bonds weaken

MUMBAI (Reuters) – The Rupee hit a record low due to rising global oil prices and the weakening of equities and bonds on Thursday, bolstering speculation that the Reserve Bank of India (RBI) ) could raise interest rates more aggressively than expected.

The majority of analysts polled by Reuters last week were expecting a third consecutive 25-basis-point increase in the key repo rate, currently set at 6.50%, although speculation has risen in recent days on the fact that the RBI could opt for a rise of 50 basis points.

"Expectations elicit an aggressive rate response, but the policy committee's mandate on inflation and the positive trend is currently encouraging a measured increase in the key rate by 25 basis points," DBS economist Radhika Rao wrote on Thursday. .

The partially convertible rupee reached a low of 73.82 per dollar before recovering to 73.62 / 63 before 07.10 GMT. He had closed at 73.3350 on Wednesday.

A forex broker from a foreign bank, who asked not to be named, said that an early intervention by the central bank had prevented the rupee from touching $ 74 per dollar but remains down from 13.3% since the beginning of the year, making it the worst performance among emerging Asian currencies.

The fall of the rupee has also led to a sharp rise in government bond yields, due to growing expectations that the RBI's monetary policy committee may aim for a stronger rate hike than expected on Friday.

"The markets are panicking right now, they are probably forecasting more rate increases than what the MPC can offer," said a senior debt trader at a private bank.

Confidence has fallen on Indian markets in recent weeks. The rupee has set a record low, bonds are at their lowest since November 2014 and the stock markets have undergone a sharp correction after reaching record levels in August.

A liquidity alert broke out last month after a series of defaults on the part of Infrastructure Leasing & Financial Services (IL & FS) triggered a buy-back pressure at other parallel banking companies .

And the sale of dollars by the RBI to support the rupee has put additional pressure on liquidity in rupees.

Rising global oil prices, which climbed 2% Wednesday to reach their highest level in four years, is bad news for importing countries like India.

The current account was put under additional pressure as India, like many emerging countries, also suffered from rising US interest rates that pushed investors away.

As part of a series of attempts to calm the markets, the government announced on Wednesday that it would allow oil trading companies (OMCs) to raise $ 10 billion in loans to the US. to help them cope with the sharp rise in the price of imported oil.

Last week, the RBI eased the standards for bank liquidity coverage ratio and announced the purchase of Rs 360 billion of government bonds through bond purchases in the markets bonds, in order to dispel the liquidity fears that haunt the markets.

As speculation on rising interest rates rose, the yield on 10-year benchmark bonds rose 10 basis points to 8.21%, far from 8.23% at the end of September, its highest level since November 2014.

On the stock markets, Nifty was down 1.95% at 10,647 hours, at 07:13 GMT, reaching its lowest level since July 3rd.

The Sensex was 1.88% lower, its lowest level in three months. Both indexes are on track for a 10th fall in 12 sessions.

The financials and energy sectors led the decline, while Reliance Industries lost 5.7%, contributing to more than a third of NSE losses. Housing Development Finance Corp Ltd lost 1.8%.

India's gold imports are expected to continue to rise in the fourth quarter, putting pressure on the trade balance as investors seek coverage against declining stocks and rupee weakness.