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Rupee, bond prices fall as crude oil climbs

Ravindra N. Sonavane
At 10.20 am, the currency was trading at 70.43 a dollar, down 0.32% from previous close of 70.20

Mumbai: Indian rupee and bond prices fell on Wednesday after crude oil extended gains to nine out of ten trading sessions, raising concerns of higher inflation and fiscal slippage. Growing speculation that the government may soon come out with a package to support farmers and a rise in US treasury yield also weighed on currency and bond markets.

At 10.20 am, the currency was trading at 70.43 a dollar, down 0.32% from previous close of 70.20. The home currency opened at 70.06 a dollar and touched a high and a low of 70.05 and 70.39 respectively. Yield on 7.17% 2028 bond was at 7.47% from its Tuesday's close of 7.46%. Bond yields and prices move in opposite directions.

“Given limited scope for growth in government revenue resources in the near term, increased spending on direct benefits to farmers would make achieving fiscal deficit targets even more challenging”, Bloomberg reported quoting William Foster, vice president, Sovereign Risk Group at Moody's Investors Service.

Brent crude jumped nine out of ten trading sessions and rose over 14% in this period on optimism that the US and China may reach a trade deal and American crude inventories may fall.

“Caution is creeping in at the longer-end of the curve as focus returns to the FY19 fiscal outlook, budget and India's general election. There are underlying concerns that bond issuance might be stepped up to meet pre-election spending, as speculation over either a universal basic income, income support scheme or farm loan waivers make rounds”, said Radhika Rao economist at DBS Bank in a note.

“Steepening in the bond curve is bound to continue as a dramatic disinflationary spell increases scope of a change in policy stance, keeping a lid on short-tenors particularly 2Y yields”, the report added.

The benchmark Sensex index rose 0.56% to 36181.98 points. Year to date, it is down 0.24%.

So far this year, the rupee has declined 0.5%, while foreign investors have sold $160 million in equities and bought $61 million in the debt markets.