Rupee, govt bonds seen steady as Jerome Powell's remarks factored in

The rupee and government bonds are anticipated to open steady on Monday, as domestic market participants had already braced for a hawkish tone from US Federal Reserve Chair Jerome Powell's speech at the Jackson Hole Economic Symposium on Friday. The US market saw little movement following Powell's remarks.

Powell suggested that the US Federal Reserve might need to further increase interest rates to temper persistently high inflation. "Two per cent is and will remain our inflation target. We're committed to achieving and sustaining a monetary policy stance restrictive enough to bring inflation down to that level over time," Powell stated during the annual economic conference in Jackson Hole on Friday.

According to the CME FedWatch Tool, 80 per cent of investors predict that the US Federal Reserve will maintain its funds rates in the forthcoming meeting in September.

"I don't anticipate any significant shifts as the market had already factored this in. Powell's speech suggests a long pause from the US side, but the next rounds of inflation and jobs data will dictate the Federal Reserve's course of action," said V.R.C. Reddy, head of treasury at Karur Vysya Bank.

"The yield on the benchmark 10-year government bond will likely remain in a specific range. On the higher end, it's 7.24-7.25 per cent as value buying emerges at that level, while on the lower end, it's 7.10-7.12 per cent. The busy season for credit starts in September, so banks may not be keen to build up more securities at this juncture. Therefore, the yield may trade between 7.10 and 7.25 per cent until the end of September," he added.

The yield on the benchmark 10-year bond closed at 7.20 per cent on Friday.

"Our domestic market has shown resilience, and demand remains strong. The auction cut-offs were better than market expectations. The yield on government bonds should remain in the current range, with minor fluctuations of one or two basis points," noted a dealer at a state-owned bank.

The rupee faced significant depreciation in August, primarily due to rising US Treasury yields. The currency touched an all-time closing low of Rs 83.15 to a dollar on August 17. However, the Reserve Bank of India stepped in to support the rupee through dollar sales, preventing any sharp depreciation. Additionally, commercial banks unwound their positions in the Non-Deliverable Forward market and refrained from entering new positions, likely following guidance from the Reserve Bank of India, thereby aiding the Indian unit.

As a result, the Indian unit appreciated by 0.54 per cent in the past week, in contrast to a 0.31 per cent depreciation in the week ending August 18.