Rupee expected to strengthen

The rupee is expected to strengthen further this week, supported by capital flows. On Friday, the rupee ended at two-month high amid dollar sales. It closed at Rs 53.71 a dollar, compared with Thursday’s close of Rs 54.39.

“The rupee will trade in the range of Rs 53.40-54 this week. Dollar flows are expected to continue even this week,” said S Srinivasaraghavan, executive vice-president and head-treasury of Dhanlaxmi Bank.

Friday was the second straight day when the rupee strengthened against the dollar.

Yields of government bonds are expected to drop this week amid repo rate cut hopes later this month. “There are possibilities of the yield on the 10-year benchmark bond 8.15 per cent 2022 touching 7.80 per cent this week,” said a bond dealer with a state-run bank. The Street is expecting a rate cut on January 29 when the Reserve Bank of India will detail the third quarter monetary policy review. The yield on the 10-year benchmark bond ended at 7.87 per cent on Friday against the previous close of 7.84 per cent.

Yields rose on Friday due to profit booking by traders.

Thursday’s rupee appreciation was triggered by Petroleum Minister Veerappa Moily’s announcement of partial deregulation of diesel prices, by allowing oil companies to effect periodic minor hike, in prices. The market views this as a positive move towards fiscal consolidation and it will help in increasing capital flows.

However, there are also possibilities of month-end dollar demand by oil importers emerging this week. On Friday, major dollar demand from oil importers was absent, which helped the rupee to strengthen.