RBI stance spoils mood

Mumbai: Both the rupee and the bond markets felt the impact of the hawkish tone of the RBI in the minutes of its last monetary policy meeting as the rupee dropped below the 66-mark, while the yields (rates) on government securities spiked.

The domestic currency on Friday dipped below the key 66-level at the opening trades itself and settled at a 13-month low of 66.12 against the US currency.

The rupee ended lower by 32 paise over the last close with the dealers blaming the surprised hawkish tone from the members of the MPC for its weakness.

Firm crude oil prices also affected the rupee. The unit has thus extended its slide for the fifth day and is at its lowest closing level since March 10, 2017, when it had settled at 66.60 against the dollar.

"Indian rupee fell for a fifth session as the RBI minutes revealed that RBI's tone is more hawkish than what markets had previously gauged. FII selling and firm oil add to pressure on the rupee, while the US dollar is also not expected to yield much ahead of May's FOMC meet," Anand James, chief market strategist at Geojit Financial Services said.

Bond markets were affected with the yields on the benchmark 10-year security rising to almost 7.72 per cent from its last close of 7.63 per cent after hitting a day's high of nearly 7.80 per cent in early trades. Bond yields are inversely related to the prices.

The hawkish minutes from the RBI came as a surprise to many as the central bank had lowered inflation forecast for this year.

It had led to expectations that it may not raise interest rates at least for a better part of this fiscal. However, minutes of the six-member committee that was released on Thursday has led to fears that an hike in the policy repo rate is around the corner.

Minutes of the meeting showed Dr Urjit Patel, governor, RBI averring that though inflation has moderated in recent months, several upside risks persist. Deputy governor, Dr Viral Acharya had said that he is likely to shift decisively to vote for a beginning of "withdrawal of accommodation" in the next MPC meeting in June.