Rama Krishna Sangem
Indian rupee breached the psychologically significant 85-per-dollar mark, and government bond yields rose on December 19, Thursday following the US Federal Reserve’s meeting, which signalled a more cautious pace of future interest rate cuts, unsettling financial markets, according to dealers. Several Asian currencies performed worse than the rupee.
Indian equities also declined for the fourth consecutive session as the Federal Reserve projected only one or two rate cuts in 2025, contrary to expectations of three to four reductions. On Wednesday, the Federal Open Market Committee lowered the policy rate by 25 basis points, bringing the Fed Funds rate to a range of 4.25–4.50 per cent.
The Sensex dropped 940 points, or 1.2 per cent, to close at 79,242.61, while the Nifty 50 slipped 247 points, or 1.02 per cent, to 23,952. Over the past four sessions, the Sensex has declined by 3.5 per cent, and the Nifty by 3.3 per cent; investors have seen their wealth erode by Rs 9.65 trillion.
On Thursday, the rupee settled at an all-time low of 85.07 per dollar, compared with its previous close of 84.96. During the session, it touched 85.09 per dollar. Meanwhile, the yield on the 10-year benchmark government bond rose 4 basis points to 6.79 per cent and that on the US 10-year Treasury surged to 4.54 per cent — the highest since May.
The narrowing spread between US 10-year Treasury yields and Indian 10-year government securities, now near two-decade lows, could impact foreign portfolio investor (FPI) flows into Indian debt markets and may even lead to outflows, according to economists and market experts. Despite a strong return of FPIs to Indian debt and equity markets in December, partly reversing two months of outflows, their investments have been volatile in recent days.
On Thursday, FPIs were net buyers of government securities worth over Rs 600 crore under the Fully Accessible Route (FAR), but they offloaded equities worth Rs 4,225 crore.
It took the rupee just over two months to breach the 85 per dollar mark from 84 per dollar, while it had taken 475 days to move from 83 to 84 levels.
