Rupee, Sensex may snap 3-day carnage as RBI eases liquidity

The BSE Sensex is likely to rebound, while the battered Indian rupee may see some recovery on Wednesday after the government and the Reserve Bank took steps yesterday to support the beaten-down bond market.

The Nifty futures on the Singapore Exchange (SGX) indicated a strong start for equities that have fallen around 6 per cent over the last three sessions. The Sensex has fallen over 1,000 points, dipping below the 18,000 mark in intraday trade, while the 50-share Nifty came close to breaching the key 5,300 mark in trade.

As of 08.30 a.m., the SGX Nifty traded 1 per cent higher at 5,434. Traders told NDTV that markets have been oversold and a bounce back has been lurking around the corner.

The big question would be whether this turns out to be a relief rally or the worst is over in the short term, another trader said.

On Tuesday, the rupee fell past 64 to the dollar for the first time and bond yields spiked to a five-year high before the Reserve Bank of India (RBI) stepped in to sell dollars.

Late in the day, the RBI said it would buy long-dated government bonds worth Rs 8,000 crore through an open market operation on August 23 and would decide after that on the amount and frequency of further operations as warranted.

The bond buying comes after a series of liquidity-tightening measures failed to support the rupee although these steps sent interest rates surging.

“I think the steps will help the rupee positively,” as foreign investors are attracted back to Indian debt on the expectation of falling yields, said N.S. Venkatesh, treasurer at IDBI Bank.

Economic affairs secretary Arvind Mayaram said there was no need currently for a bond issue to non-resident  Indians (NRIs). He also ruled out capital controls, which is likely to soothe foreign sentiments.

The RBI also relaxed rules on mandatory bond holdings for banks, known as the statutory liquidity ratio, which will help protect lenders from large mark-to-market losses.

In contrast to an earlier rule asking banks to cut their hold-to-maturity bond holdings gradually to 23 per cent of deposits, the RBI on Tuesday allowed banks to retain those holdings at 24.5 per cent of deposits.

“RBI is trying to ensure that the unintended consequences of their liquidity tightening steps that led to spike in long-end bond yields are corrected,” said Ashish Parthasarthy, treasurer at HDFC Bank.

“These measures will bring down 10-year bond yield sharply and will also reduce banks’ depreciation losses significantly.”

(With inputs from Reuters)

SGX Nifty

You may also like...

Discussion on Rupee, Sensex may snap 3-day carnage as RBI eases liquidity