The rupee is set to start strengthening by the end of the week, as month-end dollar demand from importers comes to an end.
However, the near-term trigger for the rupee remains the outcome of the Reserve Bank of India (RBI)'s second quarter monetary policy review. According to the Street, as the rupee had stabilised, RBI might roll back some more measures taken earlier to tighten liquidity.
"The rupee might not appreciate beyond 61 a dollar. But since month-end dollar demand comes to an end, the bias is towards strengthening of the rupee," said Sandeep Gonsalves, forex consultant and dealer, Mecklai & Mecklai.
The currency ended at 61.46 on Friday, compared to the previous close of 61.47 a dollar. It had opened at 61.50 and touched a high of 61.44 and a low of 61.79 during intra-day trade. According to currency dealers, the rupee weakened due to dollar demand by foreign institutional investors (FIIs) selling their investments in domestic markets. Besides, there was month-end dollar demand from importers. However, the rupee ended stable on dollar sales by companies in the last hour of trading.
The yield on the 10-year benchmark government bond 7.16 per cent 2023 ended stable on Friday, at 8.58 per cent. Since inflation has been rising, the Street expects the repo rate, at which banks borrow from RBI to be increased for a consecutive month.
"The yield on the 10-year government bond may trade in the range of 8.20 per cent to 8.80 per cent, depending upon RBI's policy actions," said Dwijendra Srivastava, head of fixed income, Sundaram Mutual Fund.
Wholesale Price Index-based inflation stood at a seven-month high of 6.46 per cent in September, compared to 6.1 per cent in August, while Consumer Price Index-based inflation quickened more than expected to 9.84 per cent in September from 9.52 per cent a month ago.