Rupee might weaken, yields could rise

The currency might continue to trade above 62 to a dollar this week

The rupee is expected to weaken this week, as the Reserve Bank of India (RBI) might continue to mop up dollar flows to boost foreign exchange reserves. Government bond yields, on the other hand, could rise from current levels, as inflation data is expected this week and the Street believes it might have inched up marginally in February.

The Consumer Price Index (CPI)-based inflation rose to 5.1 per cent in January, from 4.3 per cent in December.

RBI's foreign exchange reserves hit an all-time high of about $338 billion for a consecutive week, show data released on Friday. The rise in reserves was $3.9 billion.

"The rupee might trade with a weakening bias, as public sector banks (PSBs) might continue to mop up dollar flows attracted by domestic market. The rupee might continue to trade above 62 to a dollar this week," said the head of treasury of a PSB.

On Friday, the rupee ended marginally stronger at 62.17 to a dollar, compared with its previous close of 62.26.

The yield on the 10-year benchmark bond ended at 7.71 per cent on Friday, compared with the previous close of 7.69 per cent. The yield had inched up marginally due to profit booking among traders.

"The yield on the 10-year bond might inch up a little more after the inflation data comes this week. The broad trading range is seen at two-three basis points moving in either side from current levels," said a bond trader with a PSB.