By Dharamraj Dhutia and Nimesh Vora
MUMBAI (Reuters) -Indian rupee and bonds traders will wait for the Federal Reserve’s widely expected interest rate cut this week, a move that may not relieve pressure on the currency that has plumbed to lifetime lows for two straight weeks.
The Indian rupee dipped to an all-time low of 88.45 to the U.S. dollar last week, bogged down by consistent dollar demand and U.S. tariff-driven pressures. The rupee recovered to 88.2750 on Friday.
Attention is now trained on the Fed’s September 16–17 meeting, where a 25-basis-point rate cut is widely expected.
Beyond the decision itself, markets will scrutinize the forward guidance and rate projections for signals on the likelihood of further cuts in 2025.
In the run-up to the meeting, a weaker dollar may support the rupee, though gains for the rupee are expected to be limited and the currency is likely to underperform Asian peers, analysts at HDFC Bank said in a note.
Meanwhile, India’s 10-year benchmark 6.33% 2035 bond yield settled at 6.4867% on Friday, largely unchanged from the previous week.
Traders anticipate the yield will remain in the 6.40% to 6.52% band this week. The yield might fall to 6.40% only if the Fed hints at an additional 50-bp rate cut in the next quarter, they said.
Bond yields have eased off recent highs, as fears of fiscal slippage and additional supply were addressed after the Indian Finance Minister Nirmala Sitharaman said the government will meet its budget deficit target and there will be no changes in the borrowing calendar.
Traders say a rally in bond prices and break of the crucial 6.40% mark will need support from the central bank.
“In absence of steps to support markets, either through bond purchases in the secondary market, dovish guidance or moves to trim supply, the scope for one-sided rally in benchmark bond in the near-term remains limited,” said Radhika Rao, senior economist at DBS Bank.
While foreign inflows have supported bonds, local mutual funds have been cutting positions.
“Flows into government bond funds would also depend on future rate expectations which remain moderate currently,” said Anurag Mittal, head of fixed income at UTI Asset Management Company.
KEY EVENTS: ** India August WPI inflation – September 15, Monday (12:00 p.m. IST)(Reuters poll 0.30%) ** Bank of England rate decision – September 18, Thursday (Reuters poll: No change expected) ** Bank of Japan rate decision – September 19, Friday (Reuters poll: No change expected) U.S. ** August import prices – September 16, Tuesday (6:00 p.m. IST)
** August retail sales – September 16, Tuesday (6:00 p.m. IST)
** August industrial production – September 16, Tuesday (6:45 p.m. IST)
** August housing starts numbers – September 17, Wednesday (6:00 p.m. IST) ** Federal Reserve monetary policy decision – September 17, Wednesday (11:30 p.m. IST)(Reuters poll – 25 bps rate cut)
** Initial weekly jobless claims for week to September 8 – September 18, Thursday (6:00 p.m. IST)
** September Philly Fed Business index – September 18, Thursday(6:00 p.m. IST)
(Reporting by Dharamraj Dhutia and Nimesh Vora; Editing by Rashmi Aich)
