Rupee might weaken, yields could plummet

The rupee is expected to weaken this week due to the month-end dollar demand from importers and bond yields might fall due to expectations of further softening in interest rates in the next few months.

The month-end dollar demand for the dollar by importers gain momentum in the last week of every month and the Reserve Bank of India (RBI) is expected to keep a close watch on the rupee's appreciation against the dollar. In the past few days, RBI has been mopping dollars through public sector banks (PSBs) to boost foreign exchange reserves.

"This week, the rupee might trade in the range of 61 to 62," said Sandeep Gonsalves, forex consultant and dealer, Mecklai & Mecklai.

On Friday, the rupee had ended at 61.44 to a dollar, compared with the previous close of 61.71.

Bond yields are also expected to fall as the Street believe RBI might cut the repo rate, the rate at which commercial banks borrow from RBI, again and few experts say it could happen on February 3, when RBI will review the monetary policy.

"The yield on the 10-year bond might fall to 7.65 per cent this week on expectations of another rate cut on February 3," said the head of treasury of a PSB. The yield on the 10-year bond ended stable at 7.71 per cent on Friday.