Rising yields on government bonds took a momentary pause and ended marginally higher in the secondary government bond markets after the Reserve Bank of India kept key repo rate unchanged at 8%. However, a soaring dollar index saw the rupee maintain its downward slide, though marginal, when compared with emerging market currencies like China's yuan, Japan's yen, Brazilian real or the Russian rouble.
In the secondary bond markets, 10-year benchmark bond, 8.4% G-secs, 2024, closed the day at 8.51%, a tad higher from the previous day's close of 8.49% but pierced the crucial rate of 8.5%. The yields that were on a decline since the beginning of the week had hit a rock bottom of 8.44% on Monday as there were expectations by a few that RBI could lower repo rates or indicate a softening trend.
Extending its declining trend, the rupee ended at 61.76 against the greenback against Monday's close of 61.53.
Rupee's slide was largely attributed to fears of money outflows besides the strong dollar as reflected by the surge in dollar-index from 80 to 85.70 in the last two weeks. Standard & Poor's upgrade of India from BBB negative to `stable' however, came in as a major relief and led to the rupee's soft slide, dealers said.
Also, better-than-expected US GDP growth of 4.6% in the April-June quarter as against the 4.1% in the previous quarter also fueled apprehensions of a steep rate hike by US Fed.
"With a rising dollar-index having a major impact on currencies, especially emerging economies and the surprise rise in US GDP growth, the rupee, while weakening, still benefited from the recent S&P rating upgrade and sustained inflows from foreign institutional players," said K Harihar, treasury head at FirstRand Bank.
"Fears that the bond buying programme of Fed would end much before the year end also was one of the reasons for the dwindling bond yields and sliding rupee, dealers said. US bonds would be more attractive for FIIs if Fed hikes rates," said a dealer at a foreign fund.
FII debt investments in September was Rs 15,556 crore as compared with the previous month's Rs 17,705 crore, while in equities it stood at Rs 4,900 crore and 6,346 crore respectively.
The rupee is expected to trade in a tight band of 60-62 to the dollar. Breaching 62 is not expected by many players. In bonds, dealers expect the range to be between 8.5 and 8.8%.
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