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The Indian rupee is gaining support due to active intervention by the RBI, which has tempered its previous downward trend. Dollar sales from state-run banks and reduced speculative activity have reinforced the currency, while importers are expected to hedge early this week. Bond yields are influenced by RBI liquidity moves and offshore flows, with the 10-year benchmark settling slightly higher. Repo rate cuts this year have eased pressure on markets. Foreign investors selling and upcoming economic indicators are closely watched for further market direction.
The rupee is expected to remain supported this week due to active intervention by the Reserve Bank of India, which is helping temper its previous negative bias. Bond yields are likely to move in line with Central Bank actions and offshore flows. Advertisement
The rupee rose above 90 per USD late last week after the RBI increased its intervention, closing the week at 89.27, marking a gain of over 1%. Traders noted that dollar sales from state-run banks bolstered the currency, while the reduction of speculative bets against the rupee further reinforced the gains.
Market participants anticipate that importers will step in to lock in hedges early this week, which could limit the rupee's appreciation near the 89 level. Heavy RBI intervention in the previous week had lifted the rupee about 2% from record lows, easing a persistent decline that had pushed it to 91.075 mid-December. Analysts at IFA Global suggested that while the interventions should dampen immediate upside momentum, the USD/INR could rebound in the absence of strong inflows, with 88.80 now seen as a key support level.
The dollar index ended higher last week, breaking a three-week losing streak, partly due to a late-week fall in the yen following an expected rate hike by the Bank of Japan.
In the bond market, the 10-year benchmark 6.48% 2035 yield settled at 6.6017%, slightly higher over the week, with traders watching a 6.56%-6.65% range influenced by RBI liquidity cues and foreign flows. Bonds have faced selling pressure since the Central Bank cut the repo rate by 25 basis points, bringing total cuts for 2025 to 125 bps, the most since 2019. Many investors now expect the RBI's easing cycle to be over and are cautious about heavy bond supply in the final quarter of the fiscal year.
Further liquidity infusion is awaited in the remaining days of December, following the Central Bank's injection of 1.45 trillion INR (USD 16.19 billion) through debt purchases and forex swaps. Foreign investors have sold 109 billion INR of index-linked bonds in the first three weeks of December, although some see the higher yields and weaker rupee as potential buying opportunities.
Jean-Charles Sambor, head of emerging markets debt at TT International Asset Management, said investors remain constructive on India, viewing it as one of the more attractive risk-reward opportunities in Asia, with the currency carry offering a reasonable buffer at this stage.
Key economic events to watch include October durable goods, Q2 GDP advance, October industrial production, October new home sales, December consumer confidence, and weekly jobless claims all scheduled for later this week.
Source Reuters
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