RUPEE DROPS TO A HISTORIC LOW OF 71 TO DOLLAR ON GLOBAL CUES

MUMBAI: The rupee dropped to a historic low of 71 to the dollar as global factors on Friday overwhelmed expectations of strong economic growth data. The rupee’s fall spooked bond investors as well, given the implications of a depreciating currency on inflation and therefore on interest rates.

The rupee closed at 70.995 a dollar, down 0.37% from its previous close of 70.74 and the 10-year benchmark bond yield rose to settle at 7.95%.

Bond yields could rise further next week as a strong first quarter GDP growth raises the odds for a policy rate hike.

The GDP data, released after market hours showed that the economy grew at a brisk pace of 8.2% in the June quater, higher than estimated by the markets.

The median estimate of 39 economists for GDP growth for the June quarter was 7.6% compared with 5.6% in the June quarter last year and 7.7% in the March quarter. GVA, a measure of growth, was estimated at 7.5% by

GDP growth was at 5.6% in the same quarter of last year following the implementation of the goods and services tax (GST).

The 10-year bond yield stood at 7.952% on Friday, from its Thursday’s close of 7.931%. Bond yields and prices move in opposite directions. Ashutosh Khajuria, executive director and chief financial officer, Federal Bank said that a bullish GDP with growth closer to 8% is negative for the bond markets as expectations of a rate hike increase. “I believe that anything above 7.7% (GDP growth) is going to put pressure on bond yields,” he said.