The rupee registered its worst week in seven on Friday, while the benchmark 10-year yield closed at its lowest in more than two weeks as concerns over the COVID variant spooked markets across the globe. The partially convertible rupee ended at 74.87 against dollar compared to its close of 74.51. It touched a low of 74.9250 earlier, its lowest since November 1.
The rupee erased all of its gains in the month while suffering its worst weekly loss of 59 paise since October 8 due to month-end dollar demand and on anticipation that the US Federal Reserve will accelerate asset tapering and hike interest rates around mid-2022, analysts said.
Shares and currencies in Asia’s emerging markets fell sharply as investors fled riskier assets after the detection of the significant mutation, which in-turn strengthened safe-haven assets such as the dollar. The dollar index, which gauges the greenback’s strength against a basket of six currencies, was trading down 0.34 per cent at 96.44 but capped its losses on fears of the new COVID variant.
On the week, the rupee fell 0.9 per cent – its biggest weekly loss since the week to October 8, snapping five straight week of gains. The benchmark 10-year bond yield ended at 6.33 per cent – its lowest close since November 9 and down four basis points on day.
The Reserve Bank of India will announce its monetary policy committee’s decision after a three-day meeting on December 8 and a large section of the market has been expecting them to start raising the reserve repo rate to try to normalise the policy rate corridor to pre-pandemic levels.
The central bank has already started conducting variable rate reverse repo auctions of slightly longer tenors to temporarily absorb the massive liquidity surplus in the banking system but has shied away from announcing any more permanent measures so far.
Traders expect the 10-year bond yield to trade in a 6.25 per cent to 6.40 per cent range until the policy decision, while the rupee is expected to largely track domestic shares and dollar moves for direction.
Oil prices fell more than five per cent to a two-month low as the new added to expectations a supply surplus could swell in the first quarter.