Rupee, bond traders to take cues from RBI monetary policy decision

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The Indian rupee and government bonds are expected to remain under pressure ahead of a key Reserve Bank of India policy decision this week, with a majority of economists predicting an interest rate cut.

The rupee closed at 89.4575 on Friday, down 0.2 per cent on the week and hovering near its all-time low of 89.49.

Dollar-selling interventions by the central bank have helped the rupee hold above its all-time low, but traders say the pressure could ease if portfolio inflows pick up following a stronger-than-expected GDP print.

India's economy grew 8.2 per cent year-on-year in July-September, accelerating from the 7.8 per cent growth reported in the previous quarter, data on Friday showed.

Portfolio inflows could help push the rupee towards 89, but a sustained rebound seems unlikely, a trader at a private bank said.

The best strategy for exporters is to keep selling cash or spot dollars while hedging about 20 per cent-30 per cent of their receivables, while importers should capture dips on USD/INR, said Anil Bhansali, head of treasury at Finrex Treasury Advisors.

The RBI raised its short dollar positions in the forex market by $4.2 billion to $63.6 billion in October, underlining efforts to counter pressure on the rupee.

In bond markets, the 10-year benchmark 6.33 per cent 2035 bond yield settled at 6.5463 per cent on Friday.

Traders expect the yield to stay between 6.51 per cent and 6.58 per cent until the monetary policy decision on Friday, which will act as a major directional trigger.

The Reserve Bank of India will likely cut its key interest rate by 25 basis points in its December 5 decision, according to a majority of economists polled by Reuters, who also expect the rate to stay there through 2026.

The RBI has already slashed the repo rate by 100 bps in January-June but has maintained the status quo since then.

"The MPC faces a challenging act at the December rate review, with the mix of a strong growth print and record low inflation," said Radhika Rao, executive director and senior economist at DBS Bank.

"We expect an emphasis on forward-looking growth guidance and high real rate buffer due to weak inflation, to justify a move to lower rates further."