The rupee gained 0.45% last week to 81.3175 per dollar, trailing Asian peers due to corporate demand for the greenback.
The rupee rose 0.45% last week to 81.3175 per dollar, trailing its Asian peers due to corporate demand for the greenback.
Last week, the dollar index fell 1.4% after expectations of smaller rate hikes were reaffirmed, while US Treasury yields also fell.
In tandem, India's benchmark 10-year bond yield fell 8 basis points (bps) to 7.2215%. Its movement this week will be heavily influenced by the central bank's remarks.
According to a fixed-income trader at a private bank, yields may initially trend lower in anticipation of some dovish signals from the RBI on Wednesday, with a break of the 7.15% level likely if a subsequent pause is suggested.
"However, the lower range may be difficult to maintain," the trader added, predicting that bond yields will remain in the 7.15%-7.30% range for the week.
Currency markets have priced in a 35-bps rate hike by the RBI, especially after the Fed signalled a slowing in the pace of its hikes. According to a private bank dealer, this has relieved some of the pressure on the rupee.
However, dollar purchases by corporations and the RBI at the 80-per-dollar handle should keep the currency between 81 and 81.50 this week.
The central bank is expected to raise the repo rate for the fifth time in a row, to 6.25%, according to a Reuters poll, as it battles inflation, which last stood at 6.77% in October.
"While inflation has begun to moderate and signs of slower growth are visible, neither trend is sufficient to shift the needle towards a pause," economists at Barclays wrote in a note, adding that a split vote was possible.
Furthermore, because the policy rate is now closer to neutral, they believe now is the time for the MPC to change its stance to 'neutral.'
(With Reuters inputs)
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