 "Rupee seen weakening; yields may rise")
The rupee is seen weakening further this week and government bond yields are expected to rise. This is because the street is expecting a further hike in the repo rate on Wednesday due to inflation concerns.
The rupee ended at Rs 62.13 compared with previous close of Rs 61.83 per dollar. The rupee had opened at Rs 62.11 and during intra-day trades touched a low of Rs 62.28 per dollar. The yield on the 10-year benchmark government bond ended at 8.91% compared with previous close of 8.85%.
November Consumer Price Index (CPI) inflation rose to 11.24% compared to 10.17% in the previous month. The Wholesale Price Index (WPI) inflation data for November is expected on Monday. That will provide further direction to the monetary policy expectations.
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“The market believes there will be a repo rate hike. If that happens then growth will be hurt and foreign investors will sell off in equities. Naturally rupee will get affected,” said a currency dealer with a public sector bank.
After a brief appreciation, the rupee has again started weakening. Most currency dealers see the rupee heading towards Rs 63 per dollar this week. There are also concerns of US Fed's tapering which will keep the rupee under pressure.
Meanwhile, government bond yields shall rise. “The yield on the 8.83% 2023 bond may rise to 9%. Inflation is again high and a rate hike looks likely,” said a treasury head of a public sector bank.