By Dharamraj Dhutia and Nimesh Vora
MUMBAI (Reuters) -Indian rupee traders will focus on the Reserve Bank of India in the holiday-truncated week following its heavy-handed support for the currency, and on potential updates on trade talks with the U.S., while bond yields will hold a tight range.
India’s debt and foreign exchange markets are shut for local holidays on Tuesday and Wednesday.
The RBI’s surprise heavy dollar sales last week helped the rupee post its best weekly performance in nearly four months.
The rupee was further buoyed by U.S. President Donald Trump’s comment that Indian Prime Minister Narendra Modi promised to halt Russia crude imports. The Indian government has not yet confirmed the pledge.
India’s continued purchases of discounted Russian crude have long been a point of friction with Washington and are a reason Indian goods face tariffs of 50%, among the highest levied by the United States.
If the trade narrative turns positive, it adds another tailwind for the rupee, said Kunal Kurani, assistant vice president at FX advisory firm Mecklai Financial.
Meanwhile, India’s 10-year benchmark 6.33% 2035 bond yield settled at 6.5131% on Friday, down 3 basis points week-on-week.
Traders anticipate the benchmark yield to remain in the 6.47% to 6.53% band this week amid limited triggers.
Bond yields had eased in anticipation of dovish commentary from the members of India’s rate-setting panel in the minutes of October’s policy meeting, which were released in the middle of the week.
The members flagged room for future rate cuts as the country’s inflation outlook eases. RBI Governor Sanjay Malhotra said the benign outlook for headline and core inflation as a result of the downward revision of projections opens up policy space to further support growth.
“Given the declining interest rate environment along with the possibility of additional rate cut, investors can add longer-dated government bonds or invest in actively managed long-duration funds in their portfolio in the medium term,” said Abhishek Bisen, head of fixed income at Kotak Mahindra Mutual Fund.
A majority of market participants now expect a rate cut in December, while Nomura, Capital Economics and MUFG are predicting another reduction in February, which will take the repo rate to 5.00%.
Bisen further added that the yield curve is too steep and is likely to flatten going forward. “We were (already) positioned on relatively higher duration than peers in the portfolio.”
KEY EVENTS: ** India October HSBC manufacturing, services and composite Flash PMI – October 24, Friday (10:30 a.m. IST) U.S. ** September existing home sales – October 23, Thursday (7:30 p.m. IST)
** September consumer price inflation – October 24, Friday (6:00 p.m. IST) (Reuters poll: 3.1%)
** October S&P Global manufacturing, services and composite Flash PMI – October 24, Friday (7:15 p.m. IST)
** September U-Mich sentiment – October 24, Friday (7:30 p.m. IST)
** September new home sales units – October 24, Friday (7:30 p.m. IST)
** Initial weekly jobless claims for week to October 13 – October 23 – 29 (6:00 p.m. IST)
(Reporting by Dharamraj Dhutia and Nimesh Vora; Editing by Sherry Jacob-Phillips)
