The rupee sank to an all-time closing low on Thursday, weighed down by strong dollar index and a weakening Chinese currency even as the central bank put up a strong defence of the currency.

The rupee closed at 83.1475 per dollar, down about 20 paise against the previous close of 82.95.

Market players believe the central bank actively sold dollars in the offshore and onshore markets to cap depreciation in the rupee.

Amit Pabari, Managing Director, CR Forex Advisors, said: “Following a two-day break, the rupee marked its move towards 83.15 levels influenced by increased global risk aversion and geopolitical unrest.

“The triggering factors were the emerging real estate crises in China, the PBOC’s rate cut, and the strong sell-off in China’s equity market. That coupled with rising dollar post higher than expected US inflation data reignited speculation of a hawkish Fed and added pressure to the rupee. “

Further losses in the (USDINR) pair are likely to be arrested around the 83.25 zone, that being an important resistance mark, he said.

Anindya Banerjee, Vice-President, Kotak Securities Ltd, observed that the Indian currency weakened due to rise in the US bond yields and fall in the Chinese currency.

“We suspect RBI may have intervened and sold dollars. However, over the near term, bias remains upward and we could see USDINR breaching 83.24, previous all-time high…,” he said.

G Sec yields up

Meanwhile, yields of Government securities rose, tracking rising US Treasury yields and spooked by the possibility that RBI may consider raising interest rates in response to high retail inflation readings.

Yield of the benchmark 10-year G-Sec (7.26 per cent GS2033) rose about 4 basis points to close at 7.2487 per cent (previous close: 7.2034 per cent), with the price declining about 31 paise to close at Rs 100.0725 (Rs 100.38).

The cut-off yields at Thursday’s auction of Treasury Bills rose by 11-13 basis points, reflecting liquidity stress in the wake of the incremental cash reserve ratio prescription for Banks.

Madan Sabnavis, Chief Economist, Bank of Baroda, said: “Surplus liquidity has dried up to just ₹21,000 crore as of August 14. This has gotten reflected in the T-Bill auction cut-offs today.”

The cut-off yield of the 91 days T-Bill has moved up from 6.74 per cent last week to 6.87 per cent; 182 days is up from 6.91 per cent to 7.03 per cent; and 364 days is up from 6.96 per cent to 7.07 per cent, he said.

“This increase of 11-13 basis points (in T-Bill auction cut-off yields) is significant as the 364-day bill has crossed the 7 per cent mark. The 10–year is ruling at 7.25 per cent (yields) and it does look like that there can be some further upward movement expected as liquidity tightens in the market,” Sabnavis said.

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