Business News

Rupee eyes more gains, bond yield seen in narrow range


The Indian rupee is set to keep up its momentum this week as a rebound in equity inflows supports sentiment, while government bond yields are expected to take major cues from moves in U.S. yields and remain in a thin range.

The rupee broke out of its narrow trading range last week to finish nearly 1% higher at 81.9650 per dollar as foreign investors returned to Indian equities. It was the local currency’s best week since the week ended Jan. 13.

For the current holiday-shortened week, it is expected to move between 81.60-82.50, said traders, who will monitor if the Reserve Bank of India (RBI) steps in near the lower end of the range.

Indian financial markets will be shut on Tuesday on account of a public holiday.

Indian shares rallied on Friday after Adani group stocks received foreign investment, triggering more inflows into equities which traders said propped up the rupee and was a bullish signal.

“The rupee’s breakout led to a large move. Such action is likely to continue for a few more days,” said Dilip Parmar, research analyst at HDFC Securities.

However, fears around a tighter monetary policy from the U.S Federal Reserve will linger, with markets remaining sensitive to data releases from the United States, particularly a host of jobs reports, due this week.

India’s benchmark bond yield ended lower at 7.4161% on Friday on value-buying, but was flat for the week, after having risen by an aggregate of 15 basis points (bps) in three preceding weeks.

While bond yields of longer duration may drop further, the move in shorter-tenor bond yields is expected to remain capped on bets of tighter liquidity conditions in March.

Market participants expect the benchmark bond yield to move in the 7.36%-7.44% band this week.

They also expect the yield curve to invert later this month as the government raises the supply of Treasury Bills at a time when liquidity in the banking system is expected to slip into a deficit.

“There may be some temporary inversion in the yield curve in some parts, but in India we will not see any long-sustained inversion the way we are seeing in the U.S. because there are no expectations of a recession,” said Anand Nevatia, fund manager with Trust Mutual Fund.

“The inversion would be predominantly led by liquidity concerns and the fact that the RBI was more hawkish than expected and the shorter end is more anchored to overnight rates.”

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