The rupee bounced back after a two-day loss while yields on benchmark government bonds rose sharply after the Reserve Bank of India took more steps to further restrict banks access to cash to arrest the currencys plunge.
The rupee closed at 59.13 per dollar as compared with 59.76 on Tuesday,a gain of 63 paise,or 1.06 per cent. At one stage it rose to as high as 59.01,its strongest since July 1. However,the RBI steps led to a bloodbath on the Dalal Street with ICICI Bank (down 3.73 per cent),HDFC Bank (down 3.40 per cent),Yes Bank (12.6 per cent) and SBI (3.13 per cent ) leading the Sensex plunge of 211 points to 20,090.68. The BSE bankex fell by 4.16 per cent.
The bond market is speculating that the RBIs priority now is rupee stability as Tuesdays measures came barely a week after similar tightening steps on July 15,sending signals that stronger measures such as an outright hike in the cash reserve ratio (CRR) or even a hike in the repo rate could be on the anvil. As a result,the price of 7.16 per cent government security maturing in 2023 dropped to Rs 91.65 from Rs 93.22 on Tuesday,while its yield climbed to 8.60 per cent from 8.35 per cent. The yield on 8.07 per cent government security maturing in 2017 shot up to 8.88 per cent from 8.58 per cent.
The interbank call money rate surged over 10 per cent on Wednesday before closing at 7 per cent. Shares of Yes Bank and other private banks which depend on bulk deposits had to face the brunt of the RBI action.
Due to the RBI measures,banks having higher bulk borrowing would get impacted more as bond yields,CP and CD rates are likely to rise sharply. Thus,banks and NBFC stocks sold off sharply today. Even other sector stocks that are sensitive to interest rates witnessed selling pressure. In the next few days,focus would be on the RBI monetary policy meeting, said Sanjeev Zarbade,vice-president,Private Client Group Research,Kotak Securities.
With the quarterly review of the monetary policy less than a week away,markets are on tenterhooks about direction of interest rates. Several analysts say the RBI could hike CRR or repo rate if the forex market situation worsens in the coming days.