* Rupee falls to all-time low of 61.21/dollar
* Bond yield hits 2-month highs on foreign outflows
* Speculation c.bank may open USD window for oil companies
(Updates with details, background, recasts throughout)
By Subhadip Sircar and Swati Bhat
MUMBAI, July 8 The Indian rupee fell to a record
low while bond yields surged on Monday, exacerbating fears about
the funding of the current account deficit and sending policy
makers scrambling to find quick fix solutions beyond sporadic
The Reserve Bank of India was due to meet with officials
from oil companies, the biggest buyers of dollars in domestic
markets, to discuss their currency needs, two sources with
direct knowledge of the matter said.
Dealers said the RBI, which intervened to defend the
currency during the session, could mandate that refiners buy
dollars via a separate window and not in currency markets, a
measure that would help ease pressure on the rupee.
Meanwhile, Prime Minister Manmohan Singh will meet industry
leaders on July 29 to discuss the rupee, while Finance Minister
Palaniappan Chidambaram was due to travel to the United States
from Monday in a previously scheduled trip to drum up foreign
direct investment, especially in infrastructure.
Efforts to contain the rupee's slide highlight the
vulnerability of a country dependent on capital inflows to fund
a current account deficit that hit a record high of 4.8 percent
in the fiscal year ended in March.
"Weakening rupee, along with rising oil, is not good news
for India," said Shubhada Rao, chief economist at Yes Bank in
"As such, rupee will come under continued pressure. We
expect policymakers to take more administrative steps to bring
some stability to the currency market."
The rupee closed at 60.61/62 after earlier hitting
a record low of 61.21, breaching a previous all-time low of
60.76 on June 26. It had closed at 60.225/235 on Friday.
The falls were sparked as U.S. jobs data on Friday cemented
bets the Federal Reserve will wind down its quantitative easing,
while a a spike in oil prices that sent Brent crude futures
to a more than three-month high further aggravated
concerns about India's current account deficit.
The Indian rupee has weakened 9.3 percent this year, the
worst fall in emerging Asia. The weaker currency is sparking
foreign sales of bonds and stocks, which in turn is further
pressuring the rupee.
Measures India can take to prevent a rupee slide
India cbank cracks down on speculative FX trading
Cbank to meet oil cos on Monday to discuss FX
PM to discuss INR fall with industry on July 29
Bonds fell to a two-month low with foreign investors having
sold more than $7 billion in debt since May 22.
The 10-year yield ended up 7 basis points at
7.57 percent from its previous close, after earlier rising to as
much as 7.63 percent, its highest since May 9.
The expected market volatility led the Fixed Income Money
Market and Derivatives Association of India to remove trading
bands for the day, a measure it also adopted when the rupee was
last plumbing record lows late last month.
The 5-year overnight indexed year surged as
much as 15 bps to 7.69 percent, a two-year high, before closing
up 6 bps on the day at 7.60 percent.
The 1-year rate ended up 5 bps at 7.55 percent, further
widening the gap between the two after the spread between the
two rates turned positive on Friday for the first time in two
years, normalising the disinverted rate curve.
The RBI was seen intervening in both the morning and
afternoon sessions to defend the rupee. Yet traders said the
central bank would need stronger action to have a longer-lasting
impact on the currency.
Among measures beyond those targeting oil companies, the RBI
could curb speculative positions by imposing limits on intraday
or overnight net open position limits, they said.
Meanwhile, the government could review limits for foreign
investment in sectors such as defence or issue a sovereign bond
to non-resident Indians, dealers said.
(Editing by Rafael Nam, Richard Borsuk and Ron Popeski)