Key Takeaways
- Indian rupee fell more than 1% last week, closing at 95.55 per dollar.
- Brent crude prices remain above $100 a barrel, adding to rupee pressure.
- Indian government bonds are expected to face further selloff due to central bank bond sales.
Pressure on the Indian rupee is expected to continue this week, driven by oil prices staying above $100 a barrel and growing expectations of a US Federal Reserve rate hike.
The Indian rupee fell more than 1% last week, closing at 95.55 per dollar, according to market reports.
Brent crude prices, which have remained above $100 a barrel, have added to the rupee's downward pressure, as fresh strikes on Saudi energy infrastructure and attacks on ships in the Middle East raised concerns over supply disruptions.
Markets are pricing in a high chance of a 25-basis-point Fed rate hike on Wednesday, with signals of further tightening expected.
Last week’s hotter-than-expected consumer inflation data has all but sealed a Federal Reserve rate hike, according to ING’s note.
The Indian central bank is expected to use its most potent liquidity-draining tool, selling bonds worth 1 trillion rupees this fortnight, to curb excessive volatility in the rupee.
The benchmark 10-year bond yield posted a fourth consecutive weekly rise, ending at 7.0233% on Friday, up 6 basis points for the week.
Traders expect the benchmark yield to move in the 6.98% to 7.10% range, with focus on oil prices, the Fed decision, and the response to the first debt sale due on Thursday.
The RBI will sell bonds maturing from fiscal 2029 to fiscal 2032 worth 500 billion rupees, followed by 250 billion rupees each of sales on September 21 and September 28.
