Indian rupee, bonds to take cues from RBI rate decision, oil prices
By Jaspreet Kalra and Bhakti Tambe
MUMBAI, Oct 7 (Reuters) -The Indian rupee may stay under pressure this week and, along with government bonds, will take its cues from the Reserve Bank of India's policy decision as well as the effect of the Middle East conflict on oil prices.
The rupee INR=IN closed at 83.9725 to the U.S. dollar on Friday, having lost 0.3% on the week in its biggest weekly fall since May. The currency had hit its record low of 83.9850 in September.
Heightened fund outflows from local equities and a jump in oil prices weighed on the rupee last week, but the central bank's resolute defense of the 84 mark limited the currency's losses, traders said.
A stronger dollar and higher U.S. bond yields may pressure the rupee this week after U.S. labour market data released on Friday dashed hopes of a 50 basis-point rate cut from the Federal Reserve in November. FEDWATCH
The dollar index ended the week 2% higher, while Brent crude oil prices climbed nearly 8.5% week-on-week, boosted by risks of a wider conflict in the Middle East.
The rupee is expected to inch towards 84.10, given pressure from a stronger dollar, higher oil prices and outflows from equities, said Dilip Parmar, a foreign exchange research analyst at HDFC Securities.
The Reserve Bank of India's policy decision will be in focus on Wednesday. The RBI is expected to keep rates unchanged but investors will watch out for a change in its policy stance to "neutral" from "withdrawal of accommodation".
Meanwhile, India's 10-year benchmark government bond yield IN071034G=CC closed at 6.8339% on Friday, having risen more than seven bps in the week.
Traders expect the yield to be in a 6.75%-6.85% band this week, with the focus on U.S. Treasury yields, oil prices and the local interest rate trajectory.
"The benchmark yield should go back to trading to 6.70%-6.75% when there is more clarity on the RBI's stance after the policy and as the situation in the Middle East normalises," said Debendra Kumar Dash, senior vice president of treasury at AU Small Finance Bank.
The RBI has maintained the repo rate at 6.50% since February 2023, with stance being held at "withdrawal of accommodation".
"Slowing growth and falling inflation offer room for the RBI to cut rates in coming months. We expect repo rate cuts of 100 bps by December 2025, beginning December 2024," said Rahul Bajoria, India and ASEAN economist at Bank of America.
KEY EVENTS:
** U.S. Aug international trade - Oct. 8, Tuesday (6:00 p.m. IST)
** Reserve Bank of India's interest rate decision - Oct. 9, Wednesday (10:00 a.m. IST) (Reuters poll - 6.50%)
** U.S. Sept CPI and core CPI - Oct. 10, Thursday (6:00 p.m. IST) (Reuters poll - 0.1% and 0.2%)
** U.S. initial jobless claims data for week to Sept. 30 - Oct. 10, Thursday (6:00 p.m. IST)
** U.S. Oct U Mich sentiment - Oct 11, Friday (7:30 p.m. IST)
Reporting by Bhakti Tambe and Jaspreet Kalra; Editing by Savio D'Souza and Subhranshu Sahu
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