Mumbai: The rupee fell to a new low and bond yields climbed Friday due to a raft of global factors that include an unexpected delay in the anticipated debut of Indian debt on overseas bond indices, a widening trade gap, and firmer oil prices after a decision by energy exporters to slash output.
Expected inflows of foreign funds into local debt will now be delayed after both JPMorgan and FTSE deferred a decision on India’s inclusion in the keenly tracked bond indices. This decision coincides with the increasing likelihood of a rare deficit in the balance of payments for FY23. “The delay in inclusion of Indian bonds in global bond indices has coincided with the OPEC decision to cut production in an environment where the dollar remains firm,” said Madan Sabnavis, chief economist,
. “The rupee would remain under pressure as expected higher oil price will widen both the trade deficit and the current account deficit (CAD).”
The rupee plunged to a new lifetime low of 82.43 a dollar Friday. It lost more than half a percentage point to close at 82.33, the unit’s lowest ever closing level, Bloomberg data compiled by ETIG showed. The benchmark bond yield climbed seven basis points but closed a tad higher at 7.46% Friday. One basis point is 0.01%.
“The fear of higher CAD, coupled with overseas fund outflows, will make it difficult to finance the deficit,” said Anindya Banerjee, currency analyst, Kotak Securities. “This is a double whammy for both the currency and debt markets.”
The RBI, which was seen actively defending the rupee’s depreciation even a few weeks ago, is now focused on slowing the pace of deceleration, dealers said.
The central bank is said to have sold about $300-400 million via spot and overseas non-deliverable forwards markets to moderate the pace of decline in the rupee. OPEC, which represents the world’s leading energy exporters, decided to cut production by 2 million barrels a day, sending oil prices higher. Brent crude prices rose more than one percentage point to 96.50 a barrel since Thursday.
“With rising oil prices, we could see oil companies rushing to buy dollars before it gains further,” said Anil Bhansali, head of treasury, Finrex Treasury Advisors. Since September 13, the benchmark bond yield has spiked 41 basis points, pulling prices down. Bond yields had fallen before the policy announcement in anticipation of the inclusion of local debt in global indices. That had also helped steady the rupee.
“The comfort of higher foreign portfolio investment in government debt now appears rather distant,” said Sabnavis. India’s CAD, or the excess of overseas payables over receivables, could widen to 3.7% of GDP in the April-June quarter of FY23 and peak at 5.5% of GDP in the succeeding quarter, implying a decadal-high CAD at 3.8% of GDP in FY23, said a report by
