Dull week for gilts rupee expected to strengthen

This week seems a dull one for the gilts market. That is because the holiday mood continues and the Street expects traders to stay away from taking positions.

“I do not expect much movement in gilt yields, as this week marks the beginning of the month and the quarter,” said Parthasarathi Mukherjee, president, treasury and international banking, Axis Bank.

The yield on the 10-year benchmark gilt 8.15 per cent 2022 ended at 8.11 per cent on Friday, unchanged from the previous close. According to dealers, fears of additional government borrowings eased as the Reserve Bank of India (RBI) announced the auction of treasury bills worth Rs 140,000 crore in the period from January-March.

Sentiments were also bullish as RBI infused Rs 7,899 crore by way of open market operations (OMO) purchasing gilts on Friday. “If there is an OMO announcement this week then the yield on the 10-year benchmark gilt will trade in the range of 8.02-8.12 per cent,” said Debendra Kumar Dash, assistant vice-president (money markets) at Development Credit Bank.

According to dealers, expectations are building up for a repo rate cut in the third-quarter review of the monetary policy on January 29, which will help boost gilts’ market sentiments. The street is anticipating a 25-basis-points cut in the repo rate.

The rupee, on the other hand, may strengthen from its current levels, as month-end dollar demand eases and inflows by foreign institutional investors are expected to continue in the new year, too.

On Friday, the rupee ended at Rs 54.78 a dollar, compared with the previous close of Rs 54.94, strong on the back of bullish domestic equity markets. “This week, the rupee may strengthen to Rs 54.50 against the dollar,” said a currency dealer with a public sector bank.