The rupee and bonds bounced back on Tuesday, primarily due to the sharp decline in crude oil prices, which improved risk sentiment across financial markets, dealers said. Brent crude prices fell to around $90 per barrel after touching a high of $116.8 per barrel on Monday.
The rupee settled at 91.81 per dollar, against the previous close of 92.33 per dollar. The local currency fell to a fresh low on Monday, tracking the rise in the dollar index, the selloff in domestic equities, and the overnight rise in crude prices.
Market participants said there could have been intervention by the Reserve Bank of India (RBI) through dollar sales, as the local currency swiftly moved below the 92-per-dollar mark from 92.2 per dollar — a movement they said typically indicates the central bank’s presence.
“The rupee was mainly supported by the fall in crude prices. There was some intervention as well around the 92.2-per-dollar mark,” said a dealer at a state-owned bank.
“The dollar index could not reach the level of 100 again as it fell from 99.5 to almost 98.5, lifting the euro, pound, and yen. Risk sentiment also improved after US President Donald Trump said he wanted to end the Iran war soon and would make efforts to bring down oil prices,” said Anil Kumar Bhansali, executive director and head of treasury at Finrex Treasury Advisors.
In the bond market, yields eased after the aggressive cutoff seen in the recent open market operation (OMO) purchase auction. The central bank purchased securities at prices above prevailing market levels, which helped steady sentiment.
The yield on the benchmark 10-year government bond settled at 6.67 per cent against the previous close of 6.72 per cent.
Traders said expectations of continued liquidity support from the central bank, along with softer crude prices, helped improve appetite for bonds.
“The rupee drew support from the sharp correction in crude prices, which improved overall risk sentiment, while intermittent central bank intervention also appeared to help cap volatility in the currency. In the bond market, yields softened after the aggressive cutoff in the recent OMO purchase auction, reinforcing expectations that the RBI may continue injecting liquidity through further bond purchases, which is supporting demand for government securities,” said V R C Reddy, treasury head at Karur Vysya Bank.
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