The rupee weakened for the third straight session on Monday to hit over a three-week low against the dollar as the investors’ hope for an immediate reduction in the interest rates seems to have been quashed after the government named Urjit Patel, known to be hawkish on inflation, as the new governor of the Reserve Bank of India (RBI) on Saturday.
The rupee closed at 67.1862 against the dollar on Monday, down 0.19% from the previous close of 67.06 and the lowest since July 27, after having fallen to an intraday low of close to 67.2388 during the session.
Patel, who replaces Raghuram Rajan as the head of the central bank, is currently the deputy governor responsible for the RBI’s inflation-targeting monetary policy framework. With Patel at the helm, it is unlikely that the central bank will cut interest rates in the immediate term since he would most probably want to wait for inflation to come down to a more comfortable level, market participants said.
The weakness in the rupee was in sync with a fall in most emerging market currencies, although not to the same extent. The Russian ruble, the Indonesian rupiah and the Malaysian ringgit fell in the range of 0.3%-0.9% from their previous closes.
The rupee has declined 1.6% so far in 2016. Over the same period, foreign portfolio investors have net bought $5.85 billion of equities and net sold $1.10 billion of debt instruments.The 10-year benchmark bond too fell on Monday, with yields expanding as much as 5 basis points. The benchmark yield closed the session at 7.16%, against the previous close of 7.10%.
Meanwhile, the dollar drew positives early in the session on hopes that the US Federal Reserve might decide to hike rates. Investors will be keenly watching US Fed chair Janet Yellen’s speech at the Jackson Hole Symposium for the central bank’s view on economic conditions in the US.
The dollar index closed the session 0.1% higher at 94.58.
