Indian bond yields declined to over two-week low levels and the rupee rose to six-month highs on Tuesday after the Reserve Bank of India (RBI) announced special open market operations (OMO) and measures to foster orderly market conditions.
The benchmark 10-year bond yield fell 20 bps in opening trade and was down 18 bps at 5.94% while the rupee was trading higher at around 72.83/$ at 1 pm.
The RBI on Monday announced several measures including two more tranches of special open market operations (OMO) in bonds and raising the held-to-maturity limit under the statutory liquidity ratio for banks.
The central bank will conduct additional special OMOs involving the simultaneous purchase and sale of government securities for an aggregate amount of Rs 20,000 crore in two tranches of Rs 10,000 crore each.
On the recent appreciation of the rupee, RBI said, it is working towards containing imported inflationary pressures. The RBI remains vigilant about these developments, it said.
“This means that the RBI is comfortable with USDINR hovering near the six month low levels and may refrain from intervening aggressively,” said Rahul Gupta, Head Of Research - Currency - Emkay Global Financial Services.
The Indian equity market also witnessed a robust Rs 47,080 crore of foreign portfolio investment during the month of August. The inflows supported the rupee.
“It is RBI’s responsibility to curb the volatility in spot, and even this week it seems RBI is absent. There are strong dollar inflows into stocks and bonds which are driving the rupee higher. There has been a shift in USDINR spot trading levels, strong support lies around 72.50 zone while immediate resistance around 73,” he added.
Meanwhile, the Indian economy contracted by 23.9 percent in the first quarter primarily due to the COVID-19 pandemic. This is the worst economic contraction on record and is sharper than the CNBC-TV18 poll of a 20 percent drop.
Traders believe that higher than expected contraction in GDP revived hopes for more rates cuts by the RBI which supported sentiment for government bonds.
First Published: Sept 1, 2020 1:46 PM IST
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