By Nimesh Vora and Khushi Malhotra
MUMBAI, August 18 (Reuters) -The Indian rupee will grapple with U.S.–India trade frictions this week, with the cancellation of Washington’s planned talks in New Delhi hurting hopes of tariff relief, while the much-hyped Trump–Putin summit is not expected to have an immediate impact.
Indian government bonds will be pressured by concerns that Prime Minister Narendra Modi’s tax reforms could strain government finances.
The rupee is set for a muted start to the week and will likely hover in a narrow 87.30–87.80 band, a currency trader said, broadly in line with last week’s 87.38–87.73 range. The local unit inched up 0.1% over the week to close at 87.55.
Asian markets showed little reaction to the weekend’s Trump–Putin meeting, where the U.S. president said a full-fledged peace deal for Ukraine remained the ultimate goal rather than a mere ceasefire.
Trump said he would hold off on imposing tariffs on countries such as China for buying Russian oil following his talks with Putin.
He made no mention of India, which faces an additional 25% levy on Russian oil purchases set to take effect from August 27.
Meanwhile, Washington has called off a planned visit by U.S. trade negotiators to New Delhi from August 25–29, delaying discussions on a proposed trade agreement and dashing hopes of relief from the additional U.S. tariffs.
BONDS
Indian bonds are likely to kick off the week on a softer note with Modi’s sweeping consumption tax cuts stirring concerns over fiscal strain, traders said.
India’s 10-year benchmark 6.33% 2035 bond yield, which settled at 6.4003% last week, is expected to open 2-3 basis points higher on Monday, traders said. It is expected to trade in a 6.38%–6.45% band this week.
Bonds rallied on Thursday after S&P upgraded India’s rating, which traders said would limit the fallout from the tax overhaul. Traders further pointed out that the tax cuts will bring down the inflation rate by 0.5% to 0.8%.
The U.S.-India trade update remains a focal point for the bond market, similar to rupee. “The market will look out for progress on India-US trade talks,” said Kruti Chheta, a debt fund manager at Mirae Asset Management.
KEY EVENTS:
India ** Minutes of Reserve Bank of India’s August monetary policy meeting – August 20, Wednesday (5:00 p.m. IST) ** August HSBC manufacturing, services and composite Flash PMI – August 21, Thursday (10:30 a.m. IST) U.S. ** July housing starts numbers – August 19, Tuesday (6:00 p.m. IST) ** Initial weekly jobless claims for week to August 11 – August 21, Thursday (6:00 p.m. IST) ** August Philly Fed Business index – August 21, Thursday (6:00 p.m. IST) ** August S&P Global manufacturing, services and composite Flash PMI – August 21, Thursday (7:15 p.m. IST)** July existing home sales – – August 21, Thursday (7:30 p.m. IST)
(Reporting by Nimesh Vora; Editing by Janane Venkatraman and Eileen Soreng)
