INDIA Rupee may firm past 81/USD, bond yields to edge up as budget looms

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The Indian rupee is expected to extend its gains this week, while government bond yields may move marginally higher due to worries about yet another year of elevated borrowing.

Meanwhile, India's benchmark bond yield ended at 7.3478% on Friday, having gained 5 basis points last week after easing 7 bps in the week prior."The market is cautious and under pressure, as we are likely to see a heavy borrowing calendar in a year where there may be some worries over demand," said Rajeev Pawar, head of treasury at Ujjivan Small Finance Bank.

The government will present the union budget for the next fiscal year on Feb. 1, but the main focus for investors will be on the fiscal consolidation path and gross borrowing calendar. Most foreign banks expect gross supply in the range of 15.50 trillion rupees to 16.80 trillion rupees , with estimates from Barclays and Goldman Sachs on the higher side.

Still, shorter-tenor government bond yields are expected to fall further on bets of a turn in U.S. monetary policy later in the year and as foreign banks accelerate their bond purchases in 2023, analysts said.. The Reserve Bank of India will auction 40 billion rupees each of five- and 10-year green bonds on Wednesday.U.S.

 

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