Indian rupee plunges to record low, bond yield hits 2-mth highs on foreign outflows

Indian rupeeIndian rupee had closed at 60.225/235 on Friday.

The Indian rupee fell to a record low against the US dollar on Monday, forcing the Reserve Bank of India (RBI) to come to its defense, while bond yields surged, highlighting the vulnerability of a country dependent on capital inflows to fund its big current account deficit.

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The local currency commenced the day's trade at an all-time low level of 61.19 against the dollar at the Interbank Foreign Exchange market and hovered in a range of 61.19 and 60.80.

Forex dealers said there was some dollar selling by public sector banks at the behest of RBI.

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The rupee's slide to an all-time low of 61.21 is sparking speculation about potential measures from the Reserve Bank of India, including providing a special window for oil companies to buy dollars.

The central bank will meet officials from oil companies, the biggest buyers of dollars in domestic markets, later on Monday to discuss their foreign exchange needs, two sources with direct knowledge of the matter told Reuters.

Meanwhile, Finance Minister Palaniappan Chidambaram is due to travel to the United States from Monday in a previously scheduled trip to drum up foreign direct investment, particularly in the infrastructure sector.

The rupee, emerging Asia's worst performer this year, is likely to remain weak after stronger-than-expected U.S. jobs data on Friday cemented bets the Federal Reserve will wind down its quantitative easing (QE), sparking outflows from emerging markets.

At the same time, a spike in oil prices - with Brent crude futures hitting a more than three-month high on Monday - is aggravating concerns about India's current account deficit.

"The QE tapering has had a larger impact on CAD currencies. India too has been bearing the brunt of the risk of continuing outflows by portfolio investors," said Shubhada Rao, chief economist at Yes Bank in Mumbai.

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