Rupee likely to weaken this week

Last week, the RBI had reduced the repo rate - the rate at which banks borrow from the RBI - by 50 basis points (bps) to 6.75% due to which the rupee strengthened against the dollar

The rupee is seen weakening this week as the Street believes the euphoria, which was created last week after the surprise rate cut by the Reserve Bank of India (RBI), will taper down and some dollar demand might come up.

Last week, the RBI had reduced the repo rate - the rate at which banks borrow from the RBI — by 50 basis points (bps) to 6.75 per cent due to which the rupee strengthened against the dollar.

“The rupee may trade in the range of 65.30-65.80 a dollar. The risk aversion may come back next week as the positive effect of 50 bps rate cut fades,” said Anindya Banerjee, associate vice-president (currency derivatives) at Kotak Securities. On Friday, the rupee ended at 65.51 a dollar compared to the previous close of 65.59 a dollar. Meanwhile, bond yields are likely to fall by a few more basis points this week. The yield on the 10-year benchmark bond had dropped almost 20 bps after the rate cut, but on Friday, some bit of profit booking emerged among traders due to which the yield on the 10-year bond ended at 7.56 per cent compared to the previous close of 7.54 per cent.

According to bond traders, the yield on the 10-year benchmark bond might fall by an additional 2-4 bps this week and the trading range is seen between 7.52 per cent and 7.57 per cent. The Street was expecting a 25 bps rate cut against the 50 bps reduction done by the central bank.