The rupee is expected to appreciate further from the current levels, while government bond yields might drop. The movement of the rupee and government bond yields will, to a great extent, depend on the outcome of the Reserve Bank of India’s (RBI) bi-monthly monetary policy to be announced on Tuesday. The broad expectation of the Street is that key policy rates will be unchanged, thanks to softening inflation. The guidance of the monetary policy is also important for the markets.
Dollar flows in domestic markets are expected to continue but state-run banks are seen mopping the flows to boost RBI’s foreign exchange kitty.
On Friday, the rupee hit an eight-month high, ending at 59.94 to a dollar, although it saw stiff resistance around 60.4, with government banks buying dollars on RBI’s behalf. The Indian currency has appreciated almost 13 per cent since it hit a nadir on August 28, 2013, when it touched 68.85 to the dollar during intra-day trade.
“The rupee may trade in the range of 59.75 to 60.50 per dollar this week,” said Mohan Shenoi, president (group treasury and global markets)