By Dharamraj Dhutia and Jaspreet Kalra
MUMBAI, Dec 1(Reuters) – The Indian rupee and government bonds are expected to remain under pressure ahead of a key Reserve Bank of India policy decision this week, with a majority of economists predicting an interest rate cut.
The rupee closed at 89.4575 on Friday, down 0.2% on the week and hovering near its all-time low of 89.49.
Dollar-selling interventions by the central bank have helped the rupee hold above its all-time low, but traders say the pressure could ease if portfolio inflows pick up following a stronger-than-expected GDP print.
India’s economy grew 8.2% year-on-year in July-September, accelerating from the 7.8% growth reported in the previous quarter, data on Friday showed.
Portfolio inflows could help push the rupee towards 89, but a sustained rebound seems unlikely, a trader at a private bank said.
The best strategy for exporters is to keep selling cash or spot dollars while hedging about 20%-30% of their receivables, while importers should capture dips on USD/INR, said Anil Bhansali, head of treasury at Finrex Treasury Advisors.
The RBI raised its short dollar positions in the forex market by $4.2 billion to $63.6 billion in October, underlining efforts to counter pressure on the rupee.
In bond markets, the 10-year benchmark 6.33% 2035 bond yield settled at 6.5463% on Friday.
Traders expect the yield to stay between 6.51% and 6.58% until the monetary policy decision on Friday, which will act as a major directional trigger.
The Reserve Bank of India will likely cut its key interest rate by 25 basis points in its December 5 decision, according to a majority of economists polled by Reuters, who also expect the rate to stay there through 2026.
The RBI has already slashed the repo rate by 100 bps in January-June but has maintained the status quo since then.
“The MPC faces a challenging act at the December rate review, with the mix of a strong growth print and record low inflation,” said Radhika Rao, executive director and senior economist at DBS Bank.
“We expect an emphasis on forward-looking growth guidance and high real rate buffer due to weak inflation, to justify a move to lower rates further.”
KEY FACTORS:
India
** November HSBC manufacturing PMI – December 1, Monday (10:30 a.m.) ** October industrial output – December 1, Monday (4:00 p.m.)
** November HSBC services PMI – December 3, Wednesday (10:30 a.m.) ** Reserve Bank of India monetary policy decision – December 5, Friday (10:00 a.m.)
U.S.
** November S&P Global manufacturing PMI final – December 1, Monday (8:15 p.m.
IST)
** November ISM manufacturing PMI – December 1, Monday (8:30 p.m. IST)
** September import prices – December 3, Wednesday (7:00 p.m. IST) ** September industrial production – December 3, Wednesday (7:45 p.m.
IST)
** November S&P Global composite PMI final – December 3, Wednesday (8:15 p.m. IST)
** November S&P Global services PMI final – December 3, Wednesday (8:15 p.m. IST) ** November ISM non-manufacturing PMI – December 3, Wednesday (8:30 p.m.
IST) ** Initial weekly jobless claims for week to November 24 – December 4, Thursday (7:00 p.m. IST)
** September personal consumption expenditure index, core PCE index – December 5, Friday (8:30 p.m.
IST)
** September Factory orders – December 5, Friday (8:30 p.m. IST)
** December U Mich Sentiment prelim – December 5, Friday (8:30 p.m. IST)
(Reporting by Dharamraj Dhutia and Jaspreet Kalra; Editing by Mrigank Dhaniwala)
