Gilts suffer on high oil prices but rupee steady

Gilts suffer on high oil prices but rupee steady

NEW DELHI: The rupee opened steady against the US dollar on Monday despite global crude oil prices rising to fresh multi-year highs as concerns over hardening inflation worldwide dragged the greenback down, dealers said.

The domestic currency on Monday opened at 75.2550 per dollar, flat versus previous close. The rupee was last at 75.2500 per dollar.

With Bank of England Governor Andrew Bailey saying that the central bank would raise interest rates to tame high inflation and New Zealand seeing a sharp rise in consumer prices, investors are now all but convinced that global monetary authorities are on track to tighten policies.

The dollar index, which measures the US currency against a basket of six major currency pairs, declined 0.8 per cent to 93.9 on Monday.

The jump in global crude oil prices, however, continued to dampen investor sentiment for the Indian currency by worsening the outlook on domestic inflation and the country’s trade deficit, dealers said. India is a massive importer of the commodity.

Crude oil futures for November delivery on the New York Mercantile Exchange added $0.97 to close at $82.88 per barrel on Friday, the highest settlement in seven years.

Brent crude (the international benchmark) futures for December delivery on the ICE Futures Exchange tacked on 1 per cent to close at $84.86 per barrel on Friday, marking their highest levels since October 2018.

Concerns over hardening oil prices dragged the rupee to a low of 75.2825/$1 today.

Another reason flagged by dealers for the rupee’s muted reaction to global oil prices is the fact that the Reserve Bank of India last week stepped in to intervene in the foreign exchange market when the domestic currency weakened past the psychologically significant 75.50 per dollar mark.

“Globally, there is a big problem with oil prices and higher inflation everywhere but the RBI has drawn a line,” a dealer with a large foreign bank said on condition of anonymity.

“We have enough reserves and the levels at which the RBI stepped in indicate that it wants to discourage speculation at that point. Moreover, after weakening so much over the last few weeks, there is some exporter dollar selling as well,” the dealer said.

So far this month, the rupee has depreciated around 1.5 per cent versus the US dollar.

Government bonds fell sharply, with yield on the 10-year benchmark 6.10%, 2031 bond rising 4 basis points to 6.37% as the jump in oil prices and talk of higher interest rates in global economies led to speculation that the RBI could soon follow suit and tighten monetary policy.

Bond prices and yields move inversely. While the RBI, at its latest monetary policy statement, left key interest rates unchanged, it discontinued with the ‘Government Securities Acquisition Programme’, a move that dealers interpreted as a sign of policy normalization.

With global oil prices remaining elevated, some traders fear that the central bank could hike the reverse repo rate –currently the overnight funding cost for money markets-in its December policy statement.

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