RBI's monetary policy action to decide rupee and govt bond yields movement this week

As month end dollar demand from importers comes to an end, currency dealers expect the rupee to strengthen after Oct 31

The movement of rupee as well as government bond yields depends upon the Reserve Bank of India's (RBI) second-quarter monetary policy review to be detailed on Tuesday. However, since month-end dollar demand from importers comes to an end, currency dealers expect the rupee to strengthen after October 31.

 

“The rupee may not appreciate beyond Rs 61 per dollar. But since month-end dollar demand comes to an end, the bias is towards strengthening of the rupee,” said Sandeep Gonsalves, forex consultant and dealer, Mecklai & Mecklai. 

 

The rupee ended at Rs 61.46 on Friday compared with previous close of Rs 61.47 per dollar. The rupee had opened at Rs 61.50 and during intra-day trades it touched a high of Rs 61.44 and a low of Rs 61.79 per dollar. According to currency dealers the rupee weakened due to dollar demand by Foreign Institutional Investors (FIIs) who were selling their investments in domestic markets. Besides that there was also month-end dollar demand from importers. However, the rupee ended stable due to dollar sale by corporate in the last hour of trading.

 

The yield on the 10-year benchmark government bond 7.16% 2023 ended stable on Friday at 8.58%. As inflation has been rising, the street expectation is that the repo rate or the rate at which banks borrow from RBI may be hiked for a second consecutive month.

 

“The yield on the 10-year government bond may trade in the range of 8.20% to 8.80% depending upon RBI's policy action,” said Dwijendra Srivastava, head of fixed income, Sundaram Mutual Fund.

 

Wholesale Price Index (WPI) based inflation stood at a seven-month high of 6.46% in September, compared to 6.1% in the previous month. While the Consumer Price Index (CPI) based inflation quickened more than expected to 9.84% in September from 9.52% a month ago.