Rupee seen appreciating; bond yields may fall

The rupee is expected to appreciate this week due to dollar inflows from foreign institutional investors (FIIs) into domestic equities. According to currency dealers, even if it weakens initially at the start of the week, as the week proceeds the bias will shift towards appreciation.

Most dealers see the rupee trading in a broad range 61.25 to 62.25 this week. On Friday, it dropped to a near three-week low and posted its biggest weekly fall in two months, as the dollar strengthened globally on the back of upbeat US data which led some investors to price in a less dovish stance by the US Federal Reserve.

"Even if Friday's sentiments prevail initially, later during the week, the rupee will appreciate as FII flows will come into domestic markets," said S Srinivasaraghavan, head of treasury at Dhanlaxmi Bank.

Government bond yields might fall, tracking the appreciation in the rupee, said a government bond dealer with a public sector bank.

The yield on the 10-year benchmark government bond 7.16 per cent 2023 ended at 8.70 per cent on Friday compared with the previous close of 8.63 per cent. Friday's rise in yields were due to the weakening of the rupee against the dollar.

Last week, Reserve Bank of India had hiked the repo rate further by 25 basis points to 7.75 per cent while the Marginal Standing Facility rate was reduced by an equal quantum to 8.75 per cent. The move resulted in short-term rates hovering between the repo rate and the MSF rate.