Rupee might weaken, yields expected to rise

The yield on the 10-year benchmark bond ended at a 2-month high at 7.80% on Friday

The rupee is expected to cross 63 this week, as currency dealers believe the Reserve Bank of India (RBI) might continue to buy dollars. There are speculations that the US Federal Reserve could resort to a more hawkish tone and begin with rate rises earlier than expected. In such a scenario, emerging markets like India will see outflows of funds from domestic markets.

"The rupee might breach 63 because RBI will not allow the rupee to appreciate. Whenever the rupee appreciates around 62, the central bank might continue to buy dollars," said Khajuria, president (treasury), Federal Bank.

On Friday, the rupee ended near a level previously seen on January 7. On Friday, the rupee touched 63 in intra-day trades before closing at 62.97 to a dollar, against the previous close of 62.51. The rupee had opened at 62.50. The rupee had ended at 63.18 on January 7.

Government bond yields might continue to rise on account of profit-booking ahead of the financial year closing. "The rising trend for bond yields might continue," said a bond trader with a public sector bank.

The yield on the 10-year benchmark bond ended at a two-month high at 7.80 per cent on Friday, compared with the previous close of 7.72 per cent. The yield was last seen near this level on January 12 at 7.81 per cent. Bond yields climbed also due to concerns that RBI might not cut interest rates further in the next monetary policy due to retail inflation inching up.