MUMBAI: The rupee breached the 75 level to close 37 paise lower against the dollar at 75.36 on Monday on high crude prices. The higher price of dollar and oil triggered inflation fears pushing up yields on the 10-year government bond to a high of 6.34% the highest in 18 months.
The rupee came under combined pressure as crude oil moved to a seven-year high and the dollar gained against major currencies in global markets on expectations that the
US Federal Reservewill taper bond-buybacks to reduce liquidity. Bond yields rose because of fears of higher inflation coupled with RBI’s announcement that there may not be need for additional purchases under its government securities acquisition program.
According to a bond dealer the rupee could come under further pressure unless the central bank decided to intervene and sell dollars. With
reserves of $637 million and strong capital flows, there is no fear of market instability. Dealers however said that the combination of high fuel and forex would cause inflationary pressures to build up and increase pressure on the government to cut taxes on fuel.
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