Rupee News: How Soaring Global Yields Weigh on the Rupee

The Indian rupee’s slide accelerated as the currency gets trapped by soaring developed market yields, making US assets attractive and, at the same time, deteriorating the outlook for the current account deficit in the country. ‘India.

As the rupiah hit a new all-time low at 81.24 on Friday, the trend is for almost all emerging market currencies to fall on the strength of the US dollar following capital flight to the United States. United.

The Reserve Bank of India is estimated to have sold up to $2 billion on Friday to stem the rupee’s rout, market sources told ET. At three public sector banks, dollars were sold through a combination of spot, futures and futures markets, they said.

RBI could not immediately be reached for comment.

“Foreign investors are likely to bet on soaring yields in developed economies amid a sign of security,” said Bhaskar Panda, executive vice president of

. “With a falling rupee, global investors are also likely to worry about India’s widening current account deficit.”

“Capital outflows abroad could push the rupee further down, with 81 being the new psychological level in the currency market,” he said.

This month, the benchmark UK Treasury rose 95 basis points to 3.75%. The spike was only followed by a 57 basis point push in the US Treasury gauge, now at 3.76%.

Contrast that with a 20 basis point rise in India’s sovereign debt barometer, now at 7.39%.

“Foreign flows will tend to flow back to developed economies with narrowing yield differentials with emerging markets like India,” said Kunal Sodhani, vice president of Shinhan Bank. With the strengthening of the dollar index, the rupee should continue to slide.

The rupee plunged past the new psychological low at 81, hitting a new lifetime low of 81.24 on Friday, Bloomberg data compiled by ETIG shows.

Sustained selling of dollars by the Reserve Bank of India helped recoup losses for the local unit, which closed at 80.99 to the dollar, down 0.15%.

“Central bank intervention could partly shift to futures and futures markets depending on the liquidity of the rupee,” he said.

Earlier in the week, liquidity in the banking system went into deficit mode for the first time in more than three years. However, it returned to surplus mode on Thursday after the RBI staged a variable pension auction to pump Rs 50,000 crore into the system.

India, being a net importer, will have to shell out a higher cost of debts abroad if the value of the rupee against the greenback.

Globally, the dominance of the dollar increases as the cost of living rises. The dollar index, which measures unity against other major currencies, hit a high of around two decades at 111.96.

With the exception of the Russian ruble and the South Korean won, all other emerging market currencies lost value to the benefit of the US dollar which accelerated, especially after the US Fed announced a hawkish policy tone. signaling higher-than-expected rate hikes to stifle consumer prices.

The rupiah ranked as the eighth best performing currency among other emerging peers while the local unit lost more than 8% this timeframe.

Even Japan’s central bank reportedly intervened in the foreign exchange market, halting a decline in the value of the yen on Thursday to buy yen for the first time since 1998.

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