The yield on government bonds is expected to remain firm on expectations that the inflation may rise and recovery in the industrial production.
On Friday, the bond prices rose after the RBI set higher than expected cut-off prices at the auction of 7-year and 10-year bonds. The cut-off for auction of 6.90 per cent 2019 paper was set at Rs 96.96 implying a yield of 7.34 per cent.
The benchmark 10-year paper closed at Rs 97.10 implying a yield of 7.32 per cent.
Dealers said firmness in industrial growth figures and expectations of rising inflation are weighing on the sentiment at present.
Industrial production grew 9.1 per cent in September, higher than the 6.03 per cent growth recorded in the same month last year. The annual point-to-point inflation rate, measured by wholesale price index, was 1.34 per cent for October as against 0.5 per cent in the September. The inflation for the month of October in 2008 was 11.06 per cent. The government is expected to raise Rs 10,000 crore through sale of three securities on November 20.
Call rate to remain soft
The inter-bank lending rates in the overnight market may remain soft as system is flush with liquidity. On Friday, the call rate moved in the range of 3.05- 3.35 per cent. RBI absorbed Rs 96,930 crore under reverse repo operation. RBI did not infuse any amount under repo operation.
Rupee may appreciate
The capital flows, including portfolio investments in the stock market and global weakness of the dollar may keep the rupee on an upward trajectory.
FIIs have invested about $18.63 billion in Indian equity and debt till date from April in this financial year. The rupee may stay firm if the stock market draws further flow of funds, currency dealers said.
Banks may also sell the greenback if it stays weak against the euro and the pound sterling.
On Friday, rupee closed at 46.34 compared to closing figure of 46.31 on Thursday. The forward premium rates closed higher at the long end of the curve. The six-month forward premium was at 2.82 per cent.
The global market trend including an adjustment in yuan against greenback on US President Barack Obama’s visit to China has driven the rupee.
Dealers said the decision by Chinese government to allow yuan to appreciate may set of dollar selling, impacting relative value of rupee.
In the currency futures market, the most actively traded currency future contract (USD-INR) was for November 26, 2009. The last traded price for this contract was Rs 46.40.
The one-month contract in the non-deliverable market forward market is being traded at Rs 46.20/46.26.
NDF rate was sharply lower today that gave rise to some arbitrage, dealers added.
