Bond market eyes inflation data rupee seen weak

The Street is not expecting much movement in government bond yields this week. The trigger will be the wholesale price index (WPI) inflation data for December to be released tomorrow. That will provide direction to the movement of G-sec yields.

The yield on the 10-year benchmark G-sec 8.15 per cent 2022 ended at 7.87 per cent on Friday, compared with the previous close of 7.88 per cent due to rate cut hopes expected in the Reserve Bank of India’s (RBI) monetary policy review later this month.

“RBI’s rate cut move will depend on the December inflation print at the lower end of this tolerance zone and revision in the November numbers staying below the higher end of the tolerance zone. It is possible that RBI will delay the rate cut to the March mid-quarter review if headline print is close to 7.5 per cent and could surprise with a 50-basis points rate cut if inflation print is close to seven per cent,” said J Moses Harding, head of economic and market research, IndusInd Bank.

In November, WPI rose 7.24 per cent from a year earlier, compared with 7.45 per cent in October.

According to Vivek Mhatre, general manager (treasury), Union Bank of India, the yield on 8.15 per cent 2022 G-sec this week is seen in the range of 7.85-7.88 per cent.

The rupee ended at 54.76 to a dollar on Friday, compared with the previous close of Rs 54.57. It is expected to weaken during the weak and could even touch Rs 55 per dollar. “The rupee is seen weak, driven by concerns in current account deficit and fear of subdued foreign institutional investor flows into the equity market. The rupee has also lost traction with dollar weakness against global currencies on fear of downside risks from weak domestic cues. The comfort, however, is from the government’s aggressive stance on fiscal consolidation and RBI’s preparedness for a rate reversal cycle,” said Harding.