The rupee is likely to undergo further correction as developments in the euro zone unfold this week, say market participants. Last week, the currency closed with a weekly loss of 1.67 per cent after gaining for five consecutive weeks against the greenback.
On Friday, the rupee closed at 49.4 per dollar, 9 paise higher than the previous close. The Indian currency had touched its three-month high of 48.6 against the dollar at the beginning of the week, but erased most of its gains towards the end. “This is to be viewed as a technical correction after the huge one-side rally seen in January 2012,” said Param Sarma, director and CEO, NSP Treasury Risk Management. He added that even though the overall trend was positive because of the stiff regulatory guidelines in place, external adverse developments could not be ignored.
Last week, Greece accepted the austerity Bill measures necessary for the bailout package. The debt-ridden country would receive funds from the European Union and the International Monetary Fund after Greek Parliament’s approval. Traders are likely to remain risk-averse till the country gets financial aid.
Yields on the ten-year benchmark government bond is expected to ease on expectations that the Reserve Bank of India (RBI) would continue with bond purchase auctions under open-market operations (OMOs) this week. On Friday, yields on the ten-year benchmark government security closed at 8.19 per cent, 9 basis points lower than the previous close.
Banks borrowed around Rs 1 lakh crore each day from RBI under repo window last week. “Liquidity continues to stay tight. RBI may opt for another round of OMOs this week,” said a treasury official of a public sector bank. However, the drop in yields may be limited due to profit booking.
The data on inflation, on the basis of the Wholesale Price Index would also be watched for further cues on the policy stance. In December, the headline inflation stood at 7.47 per cent. RBI expects inflation to cool to 7 per cent by the end of current financial year.
