Rupee closes at all-time low of 77.74 against USD amid elevated oil prices

The rupee settled at 77.74 on Wednesday — marginally weaker than its previous close of 77.71 — to hit a fresh all-time closing low against the US dollar. The domestic currency traded in a narrow range amid sustained foreign capital outflows and elevated global crude oil prices.

The previous record closing low was on May 19, when it ended at 77.73 against the greenback, though it had tested 77.80 levels during intraday trade on May 17.

“USD-INR could continue to see low volatility. A range of 77.40 to 78.00 remains in play over the near term,” said Anindya Banerjee, vice-president, currency derivatives & interest rate derivatives, Kotak Securities.

With the monetary policy committee of the Reserve Bank of India hiking the policy repo rate by 50 basis points (bps) — in line with market expectations — and maintaining the status quo on banks’ cash reserve ratio, bond prices rallied, particularly those of shorter duration. The yield on the three-year government bond declined 9 bps, while the five-year bond yield dropped 7 bps. The yield on the four-year paper declined 8 bps.

According to the Clearing Corporation of India (CCIL) data, at the open, the yield on the 10-year government bonds (6.54 per cent 2032) was 7.51 per cent, and closed the day at 7.49 per cent.

The market had priced in the quantum of the repo rate hike, given elevated levels of inflation. Bond yields are expected to move in a range for now, dealers and analysts said.

Madan Sabnavis, chief economist, Bank of Baroda, said the RBI governor had earlier signalled that a rate increase was a ‘no brainer’. “Thus, during the current policy, the 10-year yield was broadly stable between 7.47 and 7.5 per cent. The yield on 10-year paper is expected to remain range-bound in the near term,” he said. The yield could inch up to 7.75-8 per cent going ahead as the RBI moves towards calibrated withdrawal of liquidity, he added.

Avnish Jain, head of fixed income at Canara Robeco Asset Management Company, said that in the short term, market sentiment might remain positive. “Inflation may trend lower in May ’22 (as compared to April ’22), which may add to the positive sentiment. The 10-year yield is seen in a range of 7.25-7.50 per cent in the near term,” Jain said.