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Government bond yields are falling further from current levels in the run-up to the monetary policy review while the rupee is weakening due to month-end dollar demand from importers.
Bond yields have been falling in anticipation of a rate cut by the Reserve Bank of India (RBI) due to softening inflation. Retail inflation for October dropped to 5.5 per cent, down from 6.5 per cent the previous month.
RBI has set a retail inflation target of eight per cent by January 2015 and six per cent by early 2016. The central bank will review monetary policy on December 2.
The yield on the 10-year benchmark bond ended at 8.17 per cent on Friday, compared with the previous close of 8.16 per cent. “The yield may fall further. It can even fall close to 8.1 per cent this week. But the broad range is seen at 8.13 per cent to 8.18 per cent,” said the head of treasury of a large state-run bank.
Meanwhile, the rupee might attract month-end dollar demand from importers, due to which it may weaken this week. “The rupee may trade in the range of 61.50 to 62.50. The bias is towards weakening,” said a currency dealer with a state-run bank.
The rupee had ended at 61.78 on Friday, compared with the previous close of Rs 61.95 to a dollar.
