New Delhi: Foreign investment inflows and the increase in oil prices will influence the movement of Indian rupee to a limited extent this week, traders said. Friday’s closing price of 95.8725 was 0.3% lower for the week, and prospects for the rest of this week are 95.30 to 96.00.
The foreign investor inflows and central bank support are supporting the stabilization of the rupee. But the dollar remains well supported by currency buyers importers and high oil prices and tension in the Middle East are holding it back, however, from climbing any further. India imports majority of its crude oil, so the higher the price of crude, the higher is the import bill and the more pricey oil becomes the more it puts pressure on the rupee.
A bit of a reprieve may be available on the stock market, but sellers of imports still require stable dollar inflows. U.S. Federal Reserve officials’ remarks also have traders under a microscope, with their comments having the potential to affect global currency movements.
Bond market under strain
The government bonds too are heating up. The yield on the 10-year bond, which has the highest level of safety and is the benchmark for the Indian bond market, increased by 5 basis points to 7.0686% on Friday, its fourth consecutive week of gains. In the past quarter, yields have risen approximately 26 basis points.
The price of bonds will stay under pressure as investors are increasingly pressing for a rate-hike by the Reserve Bank of India (RBI). The central bank is also removing additional liquidity from the banking system, putting additional pressure. The traders are considering this benchmark yield to stay at 7.00%-7.12% this week, depending on the U.S. bond yield, oil prices and any fresh measures taken by the RBI to drain excess liquidity.
The central bank also auctioned 500 billion rupees ($5.21 billion) worth of short-term bonds last week, its first net bond sale through an auction since November 2017. This action comes as part of the broader strategy for liquidity control and inflation management, despite the immediate impact on bond prices.
In summary, the rupee and bond market is caught between movements in oil prices, investor sentiment on foreign markets and RBI’s actions to regulate liquidity, with traders keeping a close watch on the coming days.
