Firm RBI intervention to support rupee; bonds to track central bank moves
The rupee is likely to stay supported this week by firm Reserve Bank of India intervention, tempering its negative bias, while bond yields will track the central bank moves and offshore flows.
The rupee jumped above 90 per U.S dollar late on Friday after the RBI stepped up intervention, ending the week up more than 1% at 89.27.
Traders pointed out that dollar sales from state-run banks helped shore up the rupee, and cutting of speculative wagers against the currency amplified gains.
It is quite likely that importers will step in to lock hedges from Monday, which could limit the rupee's rise near 89, a trader at a large private sector bank said.
Heavy RBI intervention last week lifted the rupee about 2% from record lows, easing a persistent downtrend that had pushed it to 91.075 on December 16.
The interventions "should dampen upside momentum for now, but in the absence of strong flows, USD/INR is likely to rebound after major interventions. The 88.80 level is now key support," IFA Global said.
The dollar index ended higher on Friday, snapping a three-week losing streak, helped by a late-week slump in the yen after the Bank of Japan delivered a widely expected rate hike.
The 10-year benchmark 6.48% 2035 yield settled at 6.6017%, marginally higher on the week, with traders eyeing a 6.56%–6.65% range amid RBI liquidity cues and foreign flows.
Bonds have faced selling pressure since the RBI cut the repo rate by 25 basis points, taking cumulative cuts for 2025 to 125 bps, the most since 2019.
Many market participants believe the central bank's easing cycle is over and are increasingly wary of heavy bond supply in the final quarter of the fiscal year.
Traders are awaiting further liquidity infusion in the remaining days of December, after the central bank injected 1.45 trillion rupees ($16.19 billion) through debt purchases and forex swaps.
Foreign investors sold 109 billion rupees of index-linked bonds in the first three weeks of December, though some see higher yields and a weaker rupee as potential entry points.
"We are constructive on India and see it as one of the more attractive risk-reward opportunities in Asia. The currency carry offers a reasonable buffer at this stage," said Jean-Charles Sambor, head of emerging markets debt at TT International Asset Management.
KEY EVENTS:
U.S. ** October durable goods - December 23, Tuesday (7:00 p.m. IST) ** July-September GDP advance - December 23, Tuesday (7:00 p.m. IST) ** October industrial production - December 23, Tuesday (7:00 p.m. IST) ** October new home sales units - December 23, Tuesday (8:30 p.m. IST) ** December consumer confidence - December 23, Tuesday (8:30 p.m. IST) ** Initial weekly jobless claims for week to December 15 - December 23, Tuesday (8:30 p.m. IST)
($1 = 89.5720 Indian rupees)
