Fixed Income / Currency Report (May 03, 2012)

The Indian Rupee may not get much of a shot in the arm from RBI intervention if earlier instances hold the key. RBI has barely $260 bln in FX reserves and cannot sell ore than $1-$1.3 bln dollars in most issues. thus selling the Rupee may not have bee n an aberrant activity and may likely continue tomorrow to hit 54 before starting its long awaited clawback. at least thas what ist looks like from here ( and that cost me most of the up trades on the rupee today) the RBI interventiona s everyone knows was effective only at two step levels near 53.27 and then 53.40 and will keep firepower to 54 levels.

However Indian bond yields have hardly any reason to keep yields oto 9% as they are headed If they indeed refuse to turn at 8.77% – 8.88% then it is likely that the import bill is causing a run ont he rupee , an obvious risk of transaction based currency depreciation as our current deficit plays itself open to further devaluation while fixed exchange rates could further hurt the CAD which despite the targets may not claw back easily this year. 

I wonder if the Diamond Export control thing is temporary or if there is any real surge from Cotton exports that have begun this month

Rupee broke 53 late yesterday and lost another 45 paisa in the day’s trade today. One would probably let the rupee find a further bottom this wek and equities though reacted today should not be unduly concerned. 

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