No rate cut to harden bond yields; rupee may weaken

The street also of the view that RBI may again flag CAD as a concern on Monday due to which rupee may weaken next week

The movement of government bond yields and rupee against the dollar this week depends upon the Reserve Bank of India's (RBI) mid-quarter monetary policy review on Monday.

Many experts believe the RBI may maintain a status quo on key policy rates on Monday. If that happens then government bond yields will rise. The street is also of the view that RBI may again flag current account deficit as a concern on Monday due to which the rupee may weaken next week.

The yield on the 10-year benchmark government bond 7.16% 2023 ended at 7.31% on Friday compared with previous close of 7.33%. Yields fell drawing comfort from easing inflation and a recovery in the rupee against the dollar.

While the rupee ended at Rs 57.53 on Friday compared with previous close of Rs 57.99. The gains were due to large dollar sale by exporters in spot and forward markets.

According to government bond dealers this week the yield on the 7.16% 2023 bond will trade in the band of 7.35-7.40%. Yields will rise in the absence of repo rate cut which currently stands at 7.25%.

While the rupee is expected to trade in the range of Rs 57.00 to Rs 58.20 per dollar, said currency dealers. According to dealers the central bank may again intervene in the market by way of dollar sales by state run banks to arrest the fall in the rupee.