US Fed’s steady policy rates brings rupee gains and stable bond yields

Even as the US Fed tightened the pace of normalization, it kept its policy rates unchanged.

December 17, 2021

The Indian rupee’s value against a dollar stood at 76.09 from its previous close of 76.23 a dollar.

The bond yields also remained steady since the US Fed policy fueled the risk appetite in the emerging market’s assets.

The dollar index fell by 0.49% to 96.04.

The Reserve Bank of India (RBI) reportedly negotiated the rates to the 76.3 levels.

The Indian rupee witnessed a rise in its value on November 17 with the decision of the US Federal Reserve (US Fed) to keep its policy rates unchanged even as it tightened the pace of normalisation. The US Fed policy propelling risk appetite in the emerging market’s (EM’S) assets led to the bond yields also remaining steady. The Indian rupee’s value against a dollar stood at 76.09 from its previous close of 76.23 a dollar. According to currency dealers, the Reserve Bank of India (RBI) negotiated to 76.3 levels, leading some to cut their positions in a thin market. They also mentioned that there were dollar sales by a large Indian conglomerate too.

Falling by 0.49% to 96.04 was the dollar index, which measures its strength against major global currencies, with most currencies in Asia rising against the greenback. In this regard, the Philippines peso led the gain. The US Fed stated that it would be decreasing its bond purchase from the market by US$ 30 billion every month, while 12 members of the 18 guided anticipated three hike rates in 2022. It has, however, maintained its federal fund target range between 0-0.25%, resulting in a rally in EM currencies.

A recent Business Standard poll showed that most of the participants were expecting stabilisation in the rupee at around the current levels, or even appreciate back to 75 levels by March, when the US Fed’s policy plan is clear in the market, although volatility is anticipated in the interim. Sriram Iyer, senior research analyst at Reliance Securities, stated that the current dollar-rupee spot pair support is at 76-75.88 levels, while the resistance is at 76.25-76.44 levels. Higher volatility is expected in the pair with an expected short-term range of 75-76.5 by CR Forex. As a reaction to the US Fed policy, the bond market remained flat. On December 15, the 10-year yield closed at 6.37%.

A treasurer from the RBI mentioned that the current levels are expected to stabilise the long-term bond yields. He also mentioned that the RBI’s accommodative stance would go on for a while which suggests that the government wouldn’t need to borrow extra and some auctions could even be cancelled near the end.

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