Rupee sees lowest level in 2022, may depreciate further

A spike in the US treasury benchmark which led to a fall in domestic equity indices also weighed heavily on the rupee. The Nifty was down 1.07 per cent at 18,113, making it the worst fall in 2022. Yield on Indian government bonds, however, remained largely unchanged with the benchmark 6.10 per cent bond closing the day at 6.63 per cent against 6.64 per cent a day before.

“The rupee can depreciate further due to the cocktail of higher oil prices and surging real yields. It can see 75.30/50 levels over the medium term,” said Anindya Banerjee, currency analyst at Kotak Securities.

The local currency opened lower at 74.38 compared with Monday’s close of 74.24 a dollar and remained under pressure almost the entire trading session.

“Higher oil prices will re-stoke inflation risks and concerns about high trade deficits in the country,” said Sriram Iyer, senior research analyst at Reliance Securities.

The markets worldwide remained weak as the 10-year US treasury yield surged to 1.83 per cent, the highest in two years, as fear of Fed raising rates faster to curb rising inflation in the US gripped traders.

­If US treasury yields keep on rising, the India benchmark cannot be immune to it, said Ajay Manglunia, managing director and head of fixed income at JM Financial.

“The rising global yields, crude prices and fear of inflation has been putting a lot of pressure and the local bond yields are likely to follow a northward journey in the coming days ahead of the budget that decides the borrowing for next fiscal,” he said.

The dollar rates, on the other hand, have been buoyant as market participants re-assess how much the Fed would need to act in order to keep inflation in check, DBS Group research said in a note.

“It has become increasingly difficult for the Fed to justify flooring short rates at zero when CPI is running at 7 per cent year-on-year in December. Now there appears to be an outside chance that the Fed may want to act a tad more aggressively in the early part of the tightening cycle. This could come in the form of ending quantitative easing completely in January, instead of waiting till March,” DBS said.