The Indian rupee’s performance next week is likely to be influenced by other major Asian currencies and inflows into local equities. Analysts predict that the rupee’s fate will depend on whether the Federal Reserve’s hawkish stance will prompt a sell-off in Asian currencies due to interest rate differentials. Additionally, U.S. data and equity flows will also be closely monitored by rupee traders. Over the week, the rupee is expected to trade in a narrow range between 81.90 and 82.40. Meanwhile, local bond yields are expected to remain mostly range-bound, with traders anticipating the benchmark yield to be in the range of 7.02%-7.10%.
Last week, the Reserve Bank of India kept its key lending rate intact, signaling that monetary conditions will remain tight as the central bank looks to attain the 4% inflation target. However, the central bank may raise rates if inflation rebounds. While three external members of the Monetary Policy Committee have shared this view, the internal members reiterated that any future rate actions would depend on evolving macroeconomic data, especially inflation.
The environment for interest rates has soured by the stubborn core inflation and the hawkish stance adopted by central bankers, said Sandeep Bagla, CEO at Trust Mutual Fund. Any hint of higher inflation is likely to lead to another round of hawkishness and possibly rate hikes. Although traders do not expect any significant uptick in the last week of the quarter, purchases from banks for balance sheet management may provide support to prevent any major upside level from being breached.
To closely watch are the U.S. interest rate decisions, which may signal the future trajectory of global interest rates, and the US Q1 GDP final, which will be released on June 30, Friday.
