Rupee might weaken; yields could rise

The rupee is expected to weaken against the dollar and bond yields could rise this week.

On Friday, the rupee recovered to close at Rs 59.27, compared with the previous close of Rs 59.58, on the back of hefty corporate inflows and dollar selling by banks at the behest of the Reserve Bank of India. Besides, Finance Minister P Chidambaram assured that there was no need for panic over the recent currency slide.

On Thursday, the rupee had touched an all-time low of Rs 59.98 in intra-day trade on the back of Federal Reserve Chairman Ben Bernanke's remark that the US central bank would begin to reduce its stimulus later this year.

"The rupee will trade in the range of Rs 58.80-59.60 per dollar this week and the bias will be more towards weakening due to month-end dollar demand," said a currency dealer with a public sector bank.

Government bond yields rose on Friday as foreign institutional investors continued to sell domestic debt due to a fall in the rupee against the dollar and narrowing differentials with US treasury yields. The yield on the 10-year benchmark government bond 7.16 per cent 2023 ended at 7.43 per cent, compared with the previous close of 7.39 per cent.

"The yield is expected to rise further from the current levels this week due to a weak rupee. The yield may trade in the range of 7.40-7.48 per cent this week," said a gilts dealer with a public sector bank.