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The fall in government bond yields continued the past week due to expectations of a softer inflation number for October. The rupee, on the other hand, appreciated due to foreign flows in domestic markets.
The bond market is factoring in hopes of a repo rate cut by the Reserve Bank of India (RBI) in the current financial year itself. “The yield on the 10-year bond may trade in the range of 8.23 to 8.29 per cent this week. The bias is towards yields falling,” said a treasury official with a state-run bank.
The yield on the 10-year bond ended at 8.28 per cent on Friday compared with previous close of 8.29 per cent. Consumer Price Index inflation cooled down to 6.46 per cent in September, lowest since January 2012, due to falling prices of fruits and vegetables. It is expected that the CPI inflation numbers for October may fall below 6 per cent.
Domestic markets have been attracting foreign flows and the RBI has been mopping them in a bid to boost its foreign exchange reserves. Latest data shows that foreign exchange reserves rose by $495.5 million for the week ending October 24 to $314.18 billion. Foreign flows are seen helping the rupee against the dollar.
Most currency traders see the rupee trading near the 61 mark this week as month-end dollar demand from importers came to an end on Friday. The rupee ended at 61.37 on Friday compared with previous close of 61.45 per dollar.
