Rupee may weaken; yield on 10-yr benchmark bond may touch 8% again

The rupee is expected to weaken this week on the back of month-end dollar demand by importers while government bond yields are expected to rise due to prevailing tight liquidity.

 

The rupee ended at Rs 59.35 per dollar on Friday compared with previous close of Rs 59.68. “Though the Reserve Bank of India (RBI) has taken several steps to arrest the rupee's fall, month-end dollar demand will keep the rupee under pressure,” said a currency dealer with a private bank.

 

Meanwhile, Friday too there was month-end dollar demand. But the rupee ended strong because state-run banks were selling dollars on behalf of the central bank. In the recent past RBI has been intervening a lot in the forex market due to which their foreign currency assets have been depleting. RBI data suggest that as on July 12 the foreign currency assets fell to $252,136.3 million while it stood at $261,513.4 million on April 5.

 

According to dealers the rupee will trade in the range of Rs 59.00 to Rs 60.00 this week.

 

Government bond yields fell on Friday after Prime Minister Manmohan Singh said that India's measures to drain liquidity would be temporary and on reports that a sovereign bond issuance is being considered by the government.

 

The yield on the 10-year benchmark government bond 7.16% 2023 ended at 7.94% compared with previous close of 7.99%. 

 

“The yield on the 10-year benchmark government bond 7.16% 2023 is expected to trade in the range of 7.85% to 8%,” said S Srinivasaraghavan, executive vice president and head- treasury of Dhanlaxmi Bank.

 

According to government bond dealers, the yield may once again touch 8% this week as there is tight liquidity.