The rupee consolidates; gilts place their hopes on the RBI by announcing the OMO

NEW DELHI: The rupee opened flat against the US dollar on Thursday as the national currency consolidated after strongly strengthening against the greenback on Wednesday, traders said.

The Rupee opened on Thursday at 74.8700 to the US dollar, unchanged from the previous close. So far in the session, the Indian unit has moved in a tight band of 3 paise.

A continued rise in global crude oil prices weighed on investor morale, fueling concerns over higher domestic inflation and pressure on the trade deficit, as India is one of the world’s largest importers of raw materials.

Crude oil for November delivery on the New York Mercantile Exchange rose $ 0.91 or 1.1% to $ 83.87 per barrel on Wednesday, with the upcoming month’s futures contract closing at its highest level in seven years.

Brent crude oil futures for December delivery rose $ 0.74 to end the day at $ 85.82 per barrel, the highest close in 3 years.

On Wednesday, the national currency had soared against the US dollar, strengthening 0.6% and surpassing the $ 75/1 mark, with foreign banks systematically selling the greenback on behalf of exporters and due to investments by foreign funds in Indian companies.

“Yesterday’s rally (Wednesday) was a rally in a tight market and more linked to technical flows; there have been sales from exporters and inflows, but we think the general theme of the rupee is still depreciating, given oil prices and US yields, ”said a senior trader of a state bank on condition of anonymity.

So far this month, the rupee has lost almost 1% against the US dollar amid concerns over the import bill over the tightening of oil prices and as global central banks speak more and more to tighten monetary policies.

Government bonds were also broadly flat, with the yield on the 10-year benchmark 6.10 percent 2031 bond remaining at 6.36 percent from 6.37 percent at the previous close. The prices and yields of bonds move in the opposite direction.

Bond traders are hopeful that the RBI will step in with a new round of open market operations, most likely in the form of a “Twist Operation,” as bond yields have risen sharply over the past few days as the yield of the 10-year paper hitting an 18-month high of 6.40 percent on Wednesday.

In a “Twist Operation,” the RBI typically buys longer-term bonds while simultaneously selling the same amount of short-term gilts to flatten the slope of the sovereign yield curve.

The advantage of such an operation is to avoid a new injection of liquidity into the banking system.

The RBI now faces the dual challenge of moderating a huge excess liquidity in the banking system while ensuring the smooth running of the government’s extensive borrowing program.

“No one really expects them to come out with continuous OMOs like another ‘GSAP’ (Government Securities Acquisition Program) because the liquidity is too great, but there is hope that it will. maybe there will be an OT that could include the 10-year bond otherwise we could soon be at 6.45-6.50%, given global factors, “said a senior brokerage firm. a large foreign bank on condition of anonymity.


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