Rupee to strengthen gilt yields seen falling

The rupee is expected to strengthen against the dollar this week, on the back of inflows from foreign institutional investors (FIIs). FIIs would invest with the hope that the government could push through more reforms in Parliament, said dealers.

“The Bharti Infratel initial public offering (IPO) will also open for subscription due to which FII flows will support the rupee,” said Sandeep Gonsalves, forex consultant and dealer, Mecklai & Mecklai. Bharti Infratel’s IPO of over 189 million equity shares of face value of Rs 10 each opens for subscription on December 11.

According to Gonsalves, the rupee will trade in the range of Rs 53.5-54.5 per dollar this week.

The rupee closed at Rs 54.58 per dollar on Friday, compared with the previous close of Rs 54.14. It fell against the dollar due to the Euro’s weakness. On Friday, Germany’s central bank, the Bundesbank, cut the gross domestic product (GDP) forecast for the country for next year, dampening demand for the 17-nation shared currency Euro.

A few dealers are of the view that by end-December, the rupee may weaken to Rs 55 per dollar due to concerns on widening current account deficit and trade deficit.

Gilt yields are expected to fall from current levels as the market awaits the announcement of yet another open market purchase of gilts this week. The Reserve Bank of India will conduct open market operations worth Rs 12,000 crore on Tuesday.

However, this week, the wholesale price index (WPI) data for November is also expected, which will have an impact on gilt yields. The yield on the 10-year benchmark gilt 8.15 per cent 2022 is expected to trade in the range of 8.17-8.12 per cent this week, said a gilts dealer with a private bank.

The yield on the 10-year benchmark gilt ended flat at 8.17 per cent on Friday compared with its previous close.