Market participants in India are once again looking towards the Reserve Bank of India for interventions to support the Indian rupee and government bonds this week. Despite closing the previous week at 88.66 against the U.S. dollar, marking a 0.1% increase, the rupee faces challenges such as lacklustre foreign portfolio flows, sustained dollar demand from local importers, and recent U.S. dollar strength. Traders anticipate the rupee to fluctuate within the range of Rs 88.40 to Rs 88.80 this week, possibly showing a slight bias towards depreciation.
Data from Friday revealed that India's foreign exchange reserves had decreased by $5.6 billion to $689.7 billion as of October 31. In comparison, the dollar index closed the week at 99.5, experiencing a marginal decline, while investors evaluated the likelihood of a U.S. Federal Reserve rate adjustment in December amid conflicting statements from policymakers and enduring concerns about the U.S. economy. Analysts from ING emphasized the persistent uncertainty caused by the ongoing U.S. government shutdown and its impact on the labor market, anticipating a consolidation of the dollar in the near future.
Additionally, India's 10-year benchmark 6.33% 2035 bond yield remained stable at 6.5142% last Friday, as varied market activities led to balanced trading conditions. The yield is projected to fluctuate between 6.48% and 6.55% this week, with minimal impactful events other than potential actions by the central bank. Notably, investors from the "others" category made significant net purchases of bonds worth 205 billion rupees last week, with speculation suggesting that the Reserve Bank of India made substantial purchases as well to support the market.
Traders estimate that the RBI may have acquired around 20-25% of the 5.15% 2025 bond, which amounted to approximately 1 trillion rupees and matured on Friday. The central bank's engagement with select market participants last week prompted suggestions for increased government debt purchases to alleviate market pressures. Abhishek Bisen, Head of Fixed Income at Kotak Mahindra Mutual Fund, emphasized the importance of RBI's communication and potential announcement of a structured open market purchase calendar to bolster market sentiment.
Looking ahead, market participants are keenly awaiting India's upcoming inflation data, which is anticipated to exhibit a notable decline to 0.48% in October from 1.54% in September, marking the lowest level in the current 2012-base series. Furthermore, foreign inflows into bonds will also be closely monitored following a slowdown last week after $1.5 billion in purchases during October. Key events to watch include India's October CPI inflation on November 12 and WPI inflation on November 14, along with the U.S. Initial Weekly Jobless Claims report slated for November 13.
