Rupee may cross 60 again; yields seen rising

The rupee is set to breach the Rs 60-a-dollar mark again this week as the Street expects foreign institutional investors to continue pulling out of domestic markets. According to the street, this would result in government bond yields rising.

The rupee ended at Rs 59.63 a dollar on Friday, five paise stronger than the previous close. During intra-day trades, it had breached the Rs 60-a-dollar mark due to dollar demand by oil importers. The yield on the 10-year benchmark bond 7.2 per cent 2023 ended at 7.5 per cent on Friday compared with the previous close of 7.5 per cent.

Experts are, however, of the opinion that after Monday, the rupee might start strengthening. "Rupee is expected to strengthen next week. The optimism of the dollar is fading away in the global market as the US Federal Reserve has not given any clear-cut indication on when the stimulus would be pulled back. Federal Reserve Chairman Ben Bernanke is looking at other areas of importance and not just declining unemployment rate. The broad range would be Rs 58.50-59.50 per dollar," said Pramit Brahmbhatt, chief executive officer, Alpari Financial Services.

The Reserve Bank of India (RBI) has been selling dollars through state-run banks in order to arrest the rupee depreciation. But, the forex reserves of RBI are depleting, due to which the Street expects concrete steps from the government to strengthen the rupee in the medium-term. S Srinivasaraghavan, executive vice-president and head- treasury of Dhanlaxmi Bank, expects the yield on the 7.2 per cent 2023 bond to trade in the range of 7.5-7.6 per cent this week.

During the after-market hours on Friday, two important data points were released. Index for Industrial Production for May contracted by 1.6 per cent compared with a growth of 2.3 per cent in April while the Consumer Price Index inflation inched up to 9.9 per cent in June versus 9.31 per cent in May.

On Monday, the Wholesale Price Index inflation (WPI) for June is expected and the street expects it to rise. Inflation fell to 4.7 per cent in May from 4.9 per cent in April. The rise in WPI increases the possibility of RBI maintaining a status quo on key policy rates in the first-quarter review of the monetary policy on July 30.