Rupee could weaken, yields seen falling

The appreciation spree of the rupee might be halted this week and it might once again weaken, breaching 62 as the Reserve Bank of India (RBI) is seen mopping dollars through state-run banks. Besides,  month-end dollar demand from importers is seen putting pressure.

The rupee appreciated last week due to dollar flows in domestic markets. However, the appreciation was not significant because state-run banks were buying dollars, possibly on behalf of the central bank.

“The rupee may trade in the range of 61.75 to 62.50 this week, with a weakening bias,” said Sandeep Gonsalves, forex consultant and dealer, Mecklai & Mecklai.

On Friday, the rupee had ended at 61.87, compared with the previous close of 62.07. Data released Friday showed RBI’s foreign exchange reserves rose by $236.4 million for the week ending January 9 to $319.48 billion. Foreign currency assets, a key component rose $308.5 million to $294.85 billion.

Meanwhile, government bond yields are seen falling further as RBI last week had cut the repo rate by 25 basis points to 7.75 per cent due to comfort on the inflation front and the government’s commitment to adhere to the fiscal deficit target. The expectations is of more rate cuts in 2015.

“On Friday, the yield on the 10-year bond had risen marginally due to some profit booking. This week, the yield on the 10-year bond might trade in the range of 7.6 to 7.67 per cent,” said N S Venkatesh, executive director and head of treasury at IDBI Bank.

On Friday the yield on the 10-year bond ended at 7.71 per cent compared with previous close of 7.69 per cent.