Rupee Falls, Bond Yields Climb on Hawkish RBI Signals
By Market Desk
Indian rupee depreciates and bond yields rise as RBI signals hawkish stance, influenced by MPC decisions and rising crude oil prices.
The Indian rupee experienced a notable depreciation this week, accompanied by an increase in government bond yields. This market shift was primarily driven by the Reserve Bank of India’s (RBI) policy actions and hawkish signals from its Monetary Policy Committee (MPC).
The benchmark 10-year government bond yield climbed to 6.85% on Friday, marking an increase from 6.76% recorded the prior week. Concurrently, the rupee weakened significantly, reaching 95.71 per dollar compared to its previous level of 95.44 per dollar.
Several key market movements defined the week. The benchmark 10-year bond yield rose to 6.85% from 6.76%. The rupee value weakened to 95.71 per dollar, down from 95.44.
Shorter-tenor government securities also felt pressure. The five-year bond yield increased by 12 basis points to approximately 6.48% during the week.
RBI’s Policy Moves and Market Impact
The Reserve Bank of India’s decision to advance the closure of its FCNR(B) swap facility played a role in these market pressures. Originally slated for September 30, the facility was terminated early on August 31.
This FCNR(B) swap facility was introduced in June to support FCNR(B) deposits. It utilized concessional dollar-rupee swaps and had attracted $52.3 billion by August 13.
Crude Oil’s Role in Rupee Depreciation
Beyond domestic policy, a sharp rise in Brent crude oil prices exerted additional pressure on the rupee. Prices surged by more than 7%, reaching $93 per barrel.
This surge saw crude touch a one-month high of $94.71. It was driven by ongoing supply disruptions and geopolitical tensions involving the US-Iran conflict and the Strait of Hormuz.
Hawkish MPC Minutes Signal Tightening
Further influencing market sentiment were the minutes from the August Monetary Policy Committee (MPC) meeting, released on Wednesday. Despite a unanimous decision to maintain the repo rate at 5.25% and a neutral stance, the minutes revealed underlying concerns.
Some members expressed growing concerns regarding inflation prospects. They noted the potential for policy adjustments if inflation risks materialize. This hawkish outlook led to market expectations of monetary tightening as early as October.
While the rupee remains vulnerable to high crude prices and dollar demand, the RBI’s intervention efforts have helped to moderate its depreciation. The currency is now anticipated to trade within a defined range of 95.50 to 96 per dollar on Monday.