NEW DELHI: The rupee on Thursday gained a bit of ground against the US dollar after plunging to a near six-month low on Wednesday as global crude oil prices retreated from multi-year highs and some foreign banks sold the greenback on behalf of exporters, dealers said.

The domestic currency on Thursday settled at 74.7750 per US dollar, stronger than 74.9750 to a dollar on Wednesday.

So far this week, the rupee has witnessed tremendous volatility as the surge in global crude oil prices has made investors jittery about a rise in domestic inflation as well as a worsening trade deficit, given that India is a huge importer of the commodity.

In the four trading days so far, the Indian currency has weakened 0.9 per cent against the US dollar and according to currency traders and analysts, the rupee is likely to head towards the 75.00 to a dollar mark in the coming weeks, given the degree to which oil prices have climbed and as the Fed has signaled tapering of its bond purchases.

Crude oil futures for November delivery on the New York Mercantile Exchange declined $1.50 per barrel to close at $77.43 per barrel on Wednesday, while Brent crude futures for November shed $1.8 to close at $81.08 to a barrel. Earlier in the week, oil futures had surged to their highest levels since 2018, as the OPEC and its allies stuck to a plan of increasing supply by a relatively small amount.

Concerns over inflation have led to speculation that the Reserve Bank of India, in its monetary policy statement on Friday, could signal a faster path of normalization of the ultra-loose policy adopted to tackle the Covid-19 crisis.

Currency traders also await the US non-farm payrolls data on Friday, a key variable used by the Federal Reserve to decide on interest rates. Initial reports suggest a healthy addition to jobs in September, a factor that would strengthen the case for higher interest rates in the world’s largest economy.

Government bonds ended steady on Thursday, with yield on the 10-yer benchmark 6.10 per cent, 2031 paper closing one basis point lower at 6.27 per cent.

Traders stayed on the sidelines before Friday’s monetary policy statement. Key things to look out for are any hints of the RBI signaling a hike in the reverse repo rate (3.35 per cent), currently the overnight funding cost for money markets.

RBI’s plans regarding open market operations and whether or not it will announce another round of thee ‘Government Securities Acquisition Programme’ are also being closely awaited.

Bond purchases by RBI are crucial for the smooth passage of the Centre’s large borrowing programme. However, the large surplus of liquidity in the banking system has queered the pitch for the central bank.

By admin

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