off-the-wire

WEEKAHEAD-INDIA - Indian Rupee seen weaker, bond yields may drop as inflation eases

Kitco Media
By Reuters
Published:
Updated:
Reuters
By Sethuraman N R and Bhakti Tambe MUMBAI, May 15 (Reuters) - The Indian rupee is expected to weaken further this week, with the movement guided largely by strength in the U.S. dollar, while bond yields are expected to be fall as domestic inflation cools. With U.S. and India inflation prints out of the way, traders will likely track the movement in the greenback to set direction for the rupee. Last week, the rupee fell 0.4% against the dollar, as the latter strengthened and importer demand offset foreign inflows into the domestic equity market.


Whenever there is broad dollar strength, the rupee is depreciating, but the domestic currency is not seeing similar kind of appreciation when the dollar weakens, said Arnob Biswas, head FX research at SMC Global Securities. "Obviously, we have certain factors like RBI (Reserve Bank of India) stepping in to cap the appreciation too," Biswas said. The Indian central bank's intervention in the foreign exchange markets is one reason that the country's forex reserves rose to $596 billion - the highest in over 11 months. Biswas expects the currency to trade in the range of 82.40-8.50 this week, with exporters likely to sell dollars at close to those levels, capping the fall.


Meanwhile, India's annual retail inflation eased to a 19-month low of 4.7% in April from 5.66% the previous month, mainly due to lower food prices. The inflation gives "reasonable amount of confidence, I would say good amount of confidence that the monetary policy is on the right track," said India's central bank governor Shaktikanta Das at an event on Friday.


Retail inflation was below the RBI's upper tolerance limit for a second straight month and would likely lead to an extended pause in policy rates. "While inflationary risks due to any weather-related disturbances remain, for now this print should nudge the RBI to remain on pause in the June policy," said Sakshi Gupta, principal economist at HDFC Bank.


India's benchmark bond yield ended below the key 7% mark at 6.9938% on Friday. The 10-year benchmark bond yield settled at its lowest closing level since April 7, 2022. Traders expect the benchmark yield to move in the 6.95-7.05% range this week. "Trading below 7% level on the 10-year bond could face resistance at 6.80%," Dwijendra Srivastava, chief investment officer - debt at Sundaram Mutual Fund. "At around 6.80%, traders will start becoming a little uncomfortable because rate cuts are not in sight and there are expectations of a prolonged pause," he added.


KEY EVENTS:
• India's wholesale price inflation - May 15 (12:00 p.m IST) • U.S. monthly retail sales data - May 16 (6:00 p.m IST) • U.S. week to May 8 - initial jobless claim - May 18, Thursday (6:00 p.m. IST)


(Reporting by Nallur Sethuraman and Bhakti Tambe in Mumbai; Editing by)

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