India had nothing to cheer about on Thursday as data releases and a statement by the Fed chairperson Janet Yellen on an imminent rate hike kept the markets in a turmoil.
After a muted policy review by the RBI on Tuesday and the disappointing factory activity numbers, Asian markets opened to more turmoil on Thursday as
Saudi Arabia’s proposed deal to balance oil markets with non-OPEC help and Fed rate hike expectations wreaked havoc.
Janet Yellen on Wednesday announced that she was looking forward to a rate hike reaffirming expectations of a rate increase in December. This would be the first time in nine years that the Fed looks forward to raising rates after it had brought rates to near zero levels after the financial crisis.
Although India has already been bearing the brunt of safe-haven demand, with foreign investors pulling money out of India, a clear statement by the Fed is expected to increase outflows from the country and weaken the currency further against the dollar.
The rupee was trading at 66.66 down 0.8 per cent against the greenback on Thursday as dollar jumped to a 12-year-high against the basket of currencies.
Gold also suffered a big setback after the Fed chairperson’s remarks with the yellow metal hitting a five-year low and gold futures sliding by 0.1 per cent to Rs 25,027 per 10g.
Another development was RBI’s decision to make purchases worth Rs 10,000 crore from the secondary market under its open market operations (OMO) programme to cover the liquidity deficit in the banking system.
After concerns of bond yields rising further undermining the 125 bps rate cut, the RBI announced the OMO programme to cover the liquidity shortage in the banking system.
While the decision may help the bond yields to stabilise before the Fed decision, it may prove to be negative for the rupee.
The report from Nikkei and Markit on the private sector activity output also did not offer any help for the Indian markets. The report highlighted Indian private sector output was nearing stagnation as demand slump weighed on manufacturing and service activity.
The Nikkei India Business Activity Index, which measures private sector output, fell to 50.2 as service activity inched to stagnation at 50.1 coming down from an eight-month high of 52.3 in October, according to data released by financial information services firm Markit.
The BSE Sensex closed 231 points lower on Thursday at 25,886.62.
European Central Bank’s decision to extend quantitative easing coupled with possible Fed rate hike may play spoilsport for the rupee.