KEY EVENTS:
* U.S. Federal Reserve monetary policy decision - March 22,
Wednesday (11:30 p.m. IST)
* U.S. March S&P Global Mfg, Svcs PMI flash - March 24,
Friday
(7:15 p.m. IST)
(Reporting by Anushka Trivedi; Editing by Savio D'Souza)
By Anushka Trivedi and Dharamraj Dhutia
MUMBAI, March 20 (Reuters) - This week, the Indian rupee
and government bond yields are expected to take cues from the
Federal Reserve's guidance at a pivotal monetary policy meeting
amid the turmoil in the U.S. and European banking sectors.
The rupee finished 0.62% lower at 82.5525 per U.S.
dollar last week, as risk sentiment was buffeted by fears about
a looming global banking crisis.
Those fears were calmed a bit towards the end of last week
after the rescue of U.S. regional lender First Republic Bank and
Switzerland's Credit Suisse.
But, it left markets wondering about the Fed's future policy
path to tame inflation without triggering a full-blown crisis.
Money markets largely point to a 25 basis point (bps) hike
from the U.S. central bank on Wednesday, but there have been
calls for a pause.
The rupee should hold an 82.00-82.75 range this week until
the Fed meeting, said a state-run bank trader.
Then, they added, the Fed's dot plot, commentary as well as
the evolution of the banking turmoil would determine the
currency's direction.
We remain glued to the situation as a turn for the worse
"can see a break of 83 and set up a test of 84 quickly for the
rupee," said Jayaram Krishnamurthy, founding partner and COO at
Almus Risk Consulting.
Meanwhile, after two weeks of relative calm, India's
benchmark bond yield fell 8 bps last week to end
at 7.3511% on Friday, tracking the plunge in U.S. yields amid
the banking turmoil.
However, the domestic fixed income and foreign exchange
markets are unlikely to see any major fallout, said Ashhish
Vaidya, managing director and head of treasury and markets at
DBS Bank India.
That view was shared by Nigel Foo, head of Asian fixed
income at First Sentier Investors, but he pointed out that
Indian debt market valuations were expensive compared with U.S.
peers.
"Moreover, the rupee has performed poorly among other Asian
high-yielders, which makes buying Indian government bonds even
less attractive," Foo added.
Market participants expect the benchmark bond yield to move
in the 7.32%-7.42% band this week.
Apart from the Fed, the Indian government's borrowing plan
for April-September, likely due towards the end of the month,
could also act as a major trigger, traders said.
India's foreign exchange and debt markets will be shut on
Wednesday for a local holiday.
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