Rupee may weaken, yields seen rising

The rupee is seen weakening this week, as month-end dollar demand from importers continue. However, the rupee may appreciate after Wednesday, driven by euphoria ahead of the election results. Government bond yields, on the other hand, are seen rising.

For week ahead, the rupee is seen trading in the range of 60.80-61.50 by currency dealers. Some appreciation is seen in the rupee after this week.

Moses Harding, group chief executive officer (liability and treasury management) & chief economist of Srei Infrastructure Finance, said, "From now on till the election results, a good turnout in voting, taken as anti-incumbency, will provide a relief for rupee to a lower end of 59.50-61.50 a dollar." According to Harding, this range will take into account the weak domestic fundamentals stuck between growth and inflation conflicts and administered relief on the twin deficits. "Global cues stay neutral between taper of quantitative easing and India, which is seen as a preferred investment destination, after the issues in China and Russia," he said.

Finance Minister P Chidambaram said on Saturday the current account deficit had been brought down significantly to $32 billion and the fiscal deficit contained within 2013-14 target. His comments may initially have some positive impact on Monday, when the currency market opens. However, later in the day, dollar demand from importers might dampen sentiments, said currency dealers. The rupee ended at 60.63 a dollar on Friday, compared with its previous close of 61.09.

Meanwhile, government bond yields are seen rising due to concerns that food inflation may inch up due to below normal monsoon. The Indian Meteorological Department's forecast that the country would receive a 'sub-normal' southwest monsoons on account of the El Nino effect, has raised concerns on an inching up food inflation.

The yield on the 10-year benchmark government bond ended at 8.88 per cent on Friday, compared with the previous close of 8.85 per cent. A government bond dealer with a public sector bank said, "The yield may trade in the range of 8.80 to nine per cent this week. The bias is towards yields rising from current levels."