The rupee is expected to weaken further this week, due to high demand for the dollar in the holiday— shortened week. According to dealers, demand for the dollar has gone up on account of crude oil and gold imports and this will keep the rupee under pressure.
On Friday, the rupee ended at Rs 54.76 against the dollar, compared to the previous close of Rs 54.38. According to S Srinivasaraghavan, executive vice-president and head of treasury, Dhanlaxmi Bank, the rupee could even breach the Rs 55-mark this week, following the weakness in the euro and dollar demand by importers. “The euro is vulnerable due to Greek and Spanish concerns,” said Srinivasaraghavan.
However, J Moses Harding, head – asset liability committee and economic and market research, IndusInd Bank, said the rupee was expected to get strong support at Rs 54.85-55.10. This is seen as the worst-case scenario for the rupee at this stage. The movement of gilts await two crucial data points this week — the index of industrial production (IIP) for September and the wholesale price index (WPI) inflation for October. On Friday, the 10-year benchmark gilt 8.15 per cent 2022 closed at 8.22 per cent, compared to the previous close of 8.19 per cent.
The IIP rose 2.7 per cent in August and, according to the estimates of A Prasanna, chief economist at ICICI Securities Primary Dealership, its September growth would be 3.4 per cent. WPI inflation rose 7.81 per cent in September from a year earlier and is expected to drop a tad to 7.71 per cent in October, said Prasanna.
According to Harding, the 10-year benchmark gilt yield is expected to stay in consolidation mode at 8.17-8.22 per cent; break either way will be difficult to sustain.
“It is possible that the Reserve Bank of India would open its open market operations purchase of gilts window on extended weakness beyond 8.25 per cent. It is also good time for banks to fill the shortfall in held-to-maturity for good yield pick-up,” said Harding.