MUMBAI: There seems to be little respite for the common man, with the rupee plunging to a record low of 77.71 to the dollar on Tuesday, threatening to make imported items like crude, gold and some food items costlier.
A fall in the rupee makes imports costlier. Tuesday’s fall by 5 paise to a record closing low is believed to have been driven by dollar buying by banks to meet likely corporate or FII demand with the benchmark 10 year bond yield jumping to 7.52%, up nearly 100 bps from its coupon of 6.54%.
“The decline in the local unit is likely to have been driven by corporate or FII demand for dollars, amid outflows from both debt and equity markets, thanks to the spurt in the 10 -year GoI bond yield,” said KN Dey, managing partner, United Financial Consultants.
Analysts also expect RBI to have intervened in the currency market to have stemmed the fall in the local unit, which hit a low of 77.73 intraday. The rupee’s fall came on the eve of the Monetary Policy Committee (MPC) decision on interest rates on Wednesday. Financial markets have priced in a 35-50 bps hike in the rate at which RBI lends to the banks, expectations of which have been reflected in the benchmark 10-year yield spike.