By Dharamraj Dhutia and Jaspreet Kalra
MUMBAI (Reuters) – The Indian rupee alongside government bonds will likely take cues from the U.S. Federal Reserve’s policy decision and commentary on the impact of policy changes under the new Trump administration.
The rupee closed at 86.9975 on Thursday, down 0.1% on the week. India’s financial markets were shut on Friday for a local holiday. Analysts expect the rupee to consolidate in the near term while eyeing tariff-related developments in United States’ trade policy and broad movements in the dollar.
The rupee is likely to face strong resistance around 86.50 while finding support in the 87.40-50 zone, said Dilip Parmar, a foreign exchange research analyst at HDFC Securities.
Investors will focus on the Fed’s policy meeting this week.
While the central bank is expected to keep interest rates unchanged on Wednesday, its commentary on the impact of tariff policies on U.S. inflation and growth will also be closely watched.
U.S.
consumer sentiment plunged to a more than two-year low in March and inflation expectations have soared, data released on Friday showed. Ahead of the Fed’s decision, retail sales data will offer cues on the U.S.
consumer sentiment and whether policy uncertainty has prompted a slowdown in spending.
With the end of India’s financial year approaching on March 31, exporters’ dollar sales may also pick up which could offer support to the rupee, a trader at a mid-sized foreign bank said.
The benchmark 10-year bond yield ended at 6.6967% on Thursday, largely unchanged for the week.
Traders expect the yield to trade in the range of 6.67%-6.72% this week.
Bond yields dipped marginally after local retail inflation eased to 3.61% in February down from 4.26% in January, to its lowest since July.
A Reuters poll had pegged the reading at 3.98%.
The lower print has increased the chances of another rate cut from the Reserve Bank of India after it reduced the repo rate last month by 25 basis points – its first cut in nearly five years.
“The RBI seems to be intent to support growth with some softening seen in our growth print and with inflation dipping steeply, it presents more elbow room for RBI to usher in one more cut in April,” said Killol Pandya, senior debt fund manager at JM Financial Asset Management.
“Along with the recent easing in liquidity, the situation may bode well for bonds in the coming months.”
Traders will be vigilant of tariff-related updates from Washington and their impact on global risk sentiment, while the primary focus will be on the Fed’s policy guidance.
Interest rate futures are pricing around three Fed rate cuts of 25 bps each in 2025.
The RBI will buy bonds worth 500 billion rupees ($5.74 billion) on Tuesday, which many speculate could be the last such auction for the current financial year.
The RBI has injected over 5 trillion rupees into the banking system since mid-January through bond purchases, forex swaps and early-April maturity repos.
KEY EVENTS: ** India February WPI inflation – March 17, Monday (12:00 pm IST) (Reuters poll: 2.36%) ** Bank of Japan rate decision – March 19, Wednesday (Reuters poll: No change expected)
** Bank of England rate decision – March 20, Thursday (Reuters poll: No change expected) U.S.
** February retail sales – March 17, Monday (6:00 p.m. IST) ** February housing starts – March 18, Tuesday (6:00 p.m. IST)
** February import prices – March 18, Tuesday (6:00 p.m.
IST)
** February industrial production – March 18, Tuesday (6:45 p.m. IST)
** Federal Reserve monetary policy decision – March 19, Wednesday (11:30 p.m. IST)(Reuters poll: no change)
** Initial weekly jobless claims for week to March 10 – March 20, Thursday (6:00 p.m.
IST)
** March Philly Fed Business Index – March 20, Thursday (6:00 p.m. IST)
** February existing home sales – March 20, Thursday (7:30 p.m. IST)
($1 = 87.0450 Indian rupees)
(Reporting by Dharamraj Dhutia and Jaspreet Kalra; Editing by Eileen Soreng and Rashmi Aich)
