Rupee in Tuesday's trade (September 1, 2020) opened higher at 73.21 versus previous day's close of 73.62 per US dollar, spurting to levels past 73 to day's high of 72.75. Yield on benchmark 10-year bond however fell sharply to 5.945% versus previous close of 6.117%.
This is after the Reserve Bank of India intervened to keep interest rates in the economy in check and also signaled that it may be at ease with a stronger domestic unit. On Monday, the RBI announced two more tranches of special open market operation (OMOs) as part of its 'Operation Twist' measure and some softness in held-to-maturity (HTM) limits for bond holdings by banks.
"The RBI on Monday introduced several measures to soothe sentiment in the bond market. It announced two more OMO twists of ₹10000 crore each and said it would inject liquidity to the tune of ₹1,00,000 crore through term repos to deal with advance tax outflows," said Abhishek Goenka, Founder and CEO, IFA Global.
"However the biggest announcement which reduced the market's apprehension about absorption of supply was increase in limit for banks for holding bonds in HTM category (for which there is no Mark to Market impact). The RBI increased the limit for HTM to 25% of 19.5% SLR holding of bank to 25% of 22% SLR holding of the bank. This would increase the appetite for bonds of banks, nationalized banks in particular as they would not have to worry about the MTM impact," he added.
Dollar index which is hovering near an over 2-year low is also adding to the gains in the domestic currency.
Meanwhile, Indian indices in an otherwise choppy trade was firm in the afternoon session, with Nifty gaining 1.4% to trade over 11500 points.