Indian rupees hit record low for fourth session, bond yields rise

|HT|

The Indian rupee weakened to hit record lows against the greenback for a fourth straight session and domestic bond yields rose on Thursday after data showed the U.S. inflation rate, already at four-decade highs, accelerated even further. The dollar resumed its relentless rise, driven by both expectations for faster policy tightening by the Federal Reserve and safe-haven flows as fears of a recession grow.

The partially convertible rupee was trading at 79.75/76 per dollar by 0420 GMT, compared to its close of 79.63 on Wednesday. The unit touched a life low of 79.77 earlier on Thursday.

Traders expect dollar selling intervention by the central bank to slow the slide in the rupee but expect it to touch levels of 80 to the dollar in the near future.

"While dollar bids are likely to keep the pressure on the rupee, softening oil prices could provide some support at the margin in the near-term," economists at HDFC Bank wrote in a note. "We see further room for depreciation and volatile movements in the run-up to the Fed policy due in two weeks. Trading range for the USD/INR pair this week is expected at 79.5-80," they added. Oil prices ticked lower as investors doubled down on the possibility of a big rate hike by the U.S. Federal Reserve that would stem inflation and curb oil demand.

India imports more than two-thirds of its oil requirement and high global crude prices have threatened to push up the country's trade and current account deficits even further and have been a key factor in hurting the rupee.

India's benchmark 10-year bond yield rose 5 basis points to 7.39% in a reaction to the U.S. inflation number. Expectations of the rising interest rate differential with the United States further dampening dollar inflows into emerging markets including India are hurting bonds and the rupee, traders said.

The U.S. Fed is due to announce its next policy decision on July 27 and expectations that it would hike by 100 basis points (bps) versus the 75 bps being priced in earlier have risen post the inflation data.

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