The one-month rupee-dollar implied volatility index hit a week’s high with the rupee losing 0.17 percent to the dollar. The gauge surged 21 basis points to 4.65 percent, Bloomberg data show. The local unit closed at 74.40 a dollar versus 74.24 Thursday, the last trading day of the previous week.
One basis point is 0.01 per cent.
India’s capital markets were shut on Friday due to the Guru Nanak Jayanti.
“Stock market selloffs coupled with a repeal of farm laws soured investor sentiment, which in turn is bringing the rupee under pressure,” said Anindya Banerjee, currency analyst, Kotak Securities. “Although the rupee remains one of the best performing Asian currencies in the past one month, it may extend its losses unless global investors stop exiting local equities. The currency market volatility will clearly rise.”
Indian equity gauges shed nearly 2 percent amid overseas outflows. Foreign portfolio investors sold a net of Rs 3,438.76 crore Monday, show BSE data.
The one-month Overnight Indexed Swap (OIS), a gauge for future interest rates, rose to 3.62 percent, its highest level in this financial year.
“The debt market sentiment is turning negative due to a raft of factors,” said Naveen Singh – head of trading at ICICI Securities Primary Dealership. “While overnight interest rates have risen to repo levels, future rate gauges are hinting at a change in the rate cycle in a couple of quarters or so.”
“Although demand in primary auctions remains intact, secondary market activity is not supportive of a positive bias on bonds,” he said.
The overnight interbank call money, the rate at which banks lend and borrow, Monday hit intra-day high at 4 percent, the repo rate level.
Similarly, the tri-party repo dealing system (TREPS), a money market platform where banks and mutual funds transact, reported intra-day high at 4 per cent percent.
Bonds worth about Rs 2,500 crore changed hands in the secondary corporate bond market, which was nearly a third lower than usual by way of volumes.
Increasing short term rates will likely send New Delhi’s short term funding costs higher through rising Treasury Bill yields.
The 10-year benchmark paper yielded a tad higher at 6.35 percent. Five-year or three-year sovereign papers were also marginally higher. Bond prices fall when yields rise.
Last week’s decision to repeal the three farm laws is set to weigh on the currency and debt markets as the move could hurt overseas inflows. It’s likely to trigger volatility in the markets, sending the rupee lower against the dollar and bond yields higher unless other reforms rekindle global investor interest in Indian assets, ET reported on November 22. Corporate farming would have attracted private investments, helping North Block’s fiscal math.
