India rupee strengthens past 95 per dollar on Oct 19 as Treasury bill yields rise

The rupee gained about 2% against the dollar after the RBI's Oct 10 steps

The RBI reference rate is the central bank's daily benchmark exchange rate. It stood at 94.77 rupees per dollar on Oct 19, compared with 95.02 on Oct 16 and 96.77 on Oct 8. Most of the gain came after the RBI set up a special dollar window for oil companies and took other steps on Oct 10. The rupee also firmed against the euro, to 106.33 from 108.47 on Oct 9, and against the pound, to 126.29 from 126.92 on Oct 12.

Treasury bill yields rose again and now sit above the policy rate

Treasury bills are short-term government debt, and their yields show what the government pays to borrow. At the weekly auction on Oct 14, weighted average yields were:

• 91-day: 5.70%, up from 5.56% the week before and 5.19% on Sep 9
• 182-day: 6.26%, up from 6.06% (5.61% on Sep 9)
• 364-day: 6.44%, up from 6.26% (5.90% on Sep 9)

All three are above the 5.50% repo rate, the RBI's main lending rate, set at the Oct 7 rate rise. That fits with markets betting on further rate rises.

Investor demand at the auction weakened

Bids for the 364-day bill were 1.68 times the amount on offer, the weakest in the recent run. The 91-day bill drew 2.45 times its offer of 80 billion rupees, down from 4.84 times. This was despite the government cutting the 91-day offer from 90 billion to 80 billion rupees from Oct 7.

Stocks rose and interbank rates were steady

The BSE Sensex, a share index of large Indian companies, closed at 74,729 on Oct 16, up about 4.4% from 71,593 on Oct 8. The Bombay Stock Exchange Bank Index lagged at 62,769. The Mumbai interbank offer rates, which banks charge each other to borrow, were 5.33% overnight, 5.97% for one month and 6.38% for three months on Oct 9. The overnight rate sat between the 5.25% deposit facility rate and the 5.50% repo rate, which suggests banks still have spare cash.