Markets

Bonds, rupee weaken as Fed tone sparks outflow concerns

The Marriner S. Eccles Federal Reserve building is seen through chain link fencing in Washington, DC, on January 25, 2022. (Photo by Stefani Reynolds / AFP)

The Marriner S. Eccles Federal Reserve building is seen through chain link fencing in Washington, DC, on January 25, 2022. (Photo by Stefani Reynolds / AFP)

Indian bond yields spiked while the rupee struck a one-month low on Thursday on concerns of potential outflows after the Federal Reserve delivered a more-hawkish-than-expected update, saying a U.S. interest rate increase was likely in March.

The Fed also reaffirmed plans to end its bond purchases around the same time, calling time on a long phase of easy money. India’s benchmark 10-year bond yield rose 7 basis points to 6.73%, its highest level since December 19, 2019. Bond yields rise when prices fall.

So far in January, foreign investors have dumped $2.2 billion of Indian shares after having bought a net $3.76 billion in 2021. They had bought $23.29 billion worth shares in 2020 and $14.23 billion in 2019. They are still, net buyers of $575.35 million worth debt so far this month after having sold $3.66 billion in 2021.

The rupee was trading at 75.15/16 per dollar at 0555 GMT, after touching 75.24, its weakest since December 23depreciated by 31 paise to close at a more than four-week low of 75.09 against the dollar. High global oil prices have added to bearish pressure on the rupee, as India imports more than two-thirds of its oil needs, and rising fuel costs will spur domestic inflation.

“The concerns around oil are still very much alive and we now have Fed tightening coming up,” a senior trader at a private bank said. Markets are likely to stay jittery, he added, as the Centre is set to deliver its annual budget of February 1, while the Reserve Bank of India’s monetary policy committee will meet on February 7-9.

Economists at HDFC Bank expect volatility in the rupee-dollar exchange rate to continue through early February.

( With PTI inputs )


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Printable version | May 20, 2022 3:42:40 pm | https://www.thehindu.com/business/markets/bonds-rupee-weaken-as-fed-tone-sparks-outflow-concerns/article38335094.ece