 "Rupee may weaken; Bond yields likely to rise")
"The reality is it (credit rating) is on negative outlook. So, that bias suggests it's more than likely we will downgrade, and that says it all," Art Woo, director, sovereign ratings at Fitch Ratings told CNBC Asia's The Call on Friday.
The statement came a day after Finance Minister P Chidambaram presented the Budget, announcing a fiscal deficit target for 2013-14 at 4.8 per cent of gross domestic product (GDP). The rupee had opened at Rs 54.66 on Friday and traded in the range of Rs 54.95 to Rs 54.38 before ending at Rs 54.91 compared with its previous close of Rs 54.36.
According to Sandeep Gonsalves, forex consultant and dealer, Mecklai & Mecklai, next week the rupee is expected to trade in the range of Rs 54.75 to Rs 55.50 with a weakening bias.
Goldman Sachs said on Friday the Budget might be negative for investor sentiment and the rupee. "We think the Budget may be negative for investor sentiment and for the rupee, at least in the short term. With risks to the net borrowing requirement from the Budget to the upside, and no major proposals to reduce the current account deficit, we think there are depreciation pressures for the rupee in the near-term. Our three, six and 12-month dollar-rupee forecasts are 55, 53 and 52, with risks of further depreciation beyond 55 in the near-term," said Tushar Poddar, managing director and chief India economist, Goldman Sachs.
Government bond yields may rise further from current levels as there has been short-selling in the market. According to S Srinivasaraghavan, executive vice president and head- treasury of Dhanlaxmi Bank the yield on the 10-year benchmark bond 8.15 per cent 2022 is expected to trade in the range of 7.93-7.85 per cent this week.
The fears of a downgrade in credit rating may also result in yields rising, said dealers. Friday the yield on the benchmark government bond 8.15 per cent 2022 ended at 7.91 per cent compared with Thursday's close of 7.87 per cent.