The rupee movement came in the backdrop of FPI related outflows from the equity markets, which dipped, and demand for dollars from oil companies.
| Photo Credit:
Prakash Bharti
Yields on government securities (G-Secs) eased on Tuesday as retail inflation continued to decline in April, despite the rupee giving up early gains to end slightly stronger.
Yield of the old 10-year benchmark (6.79 per cent GS 2034) softened to close at 6.33 per cent against the previous close of 6.38 per cent, with its price rising about 33 paise.
Bond yields and prices are inversely co-related and move in opposite direction.
Yield of the new 10-year benchmark (6.33 per cent GS 2035) declined to close at 6.27 per cent against the previous close of 6.33 per cent, with its price appreciating about 41 paise.
Arvind Kanagasabai, Executive Vice President – Integrated Treasury, Tamilnad Mercantile Bank, attributed the fall in G-Sec yields to the retail inflation coming down to 3.16 per cent for April 2025 from 3.34 per cent in March 2025 and liquidity in the banking system continuing to be in surplus.
With the retail inflation easing further, the Monetary Policy Committee (MPC) may go in for another 25 basis points rate cut in its June meeting, he said.
The MPC has cut the policy repo rate by 25 basis points each in its February and April meetings. The repo rate is currently at 6 per cent.
Barclays, in a report, said while the sequential correction in food prices is likely closing, overall price pressure still appears contained, with May CPI also likely to benefit from base effect.
“The Indian Meteorological Department’s expectation of an earlier onset and ‘above normal’ monsoon augurs well for food inflation trajectory going forward. We advance our expectation of a 25 bps rate cut from August to June, amid encouraging CPI inflation outcomes,” per the report.
Rupee a tad higher
The rupee, which opened 70 paise stronger at 84.67 per dollar against previous close of 85.37, gave up all initial gains, but closed a shade stronger. This movement came in the backdrop of FPI related outflows from the equity markets, which dipped, and demand for dollars from oil companies.
The Indian currency closed at 85.34 per US dollar, up about 3 paise against previous close of 85.37.
Dilip Parmar, Senior Research Analyst, HDFC Securities, observed that the rupee relinquished intraday gains as domestic equities weakened and traders unwound their long positions.
“This downturn was further exacerbated by broader weakness in Asian currencies. Meanwhile, rising crude oil prices prompted Indian oil importers to increase their hedging activities.
“Looking ahead, the USD-INR spot rate is expected to encounter resistance around 86.30 and find support near 84.70,” he said.
Published on May 13, 2025
