Posted on March 24, 2025, by Niftynews
This week, the movement of the Indian Rupee is largely dependent on continued dollar inflows and the actions of the Reserve Bank of India (RBI). Bond yields are also projected to experience a further decline as India enters the final stretch of fiscal 2025.
Key Drivers for Indian Rupee Movement
The Indian Rupee recently experienced its strongest rally in two years, gaining 1.2% to 85.9725 per U.S. dollar, thanks to persistent inflows through foreign banks and the unwinding of short positions on the currency. Such inflows are typical for March, as companies repatriate profits and make inter-company borrowings before the close of the financial year.
However, whether the Indian Rupee can sustain its current levels will depend on the continuation of these inflows. A currency trader noted that the Reserve Bank of India could intervene to bolster its reserves and reduce the size of its forward book. As the rupee strengthens, it may reach levels near 85.70-85.75, as predicted by Anil Bhansali, head of treasury at Finrex Treasury Advisors.
Impact of U.S. Dollar and Global Sentiment
Market participants will also focus on the performance of the U.S. dollar and the trajectory of U.S. Treasury yields, especially with concerns over an economic slowdown in the United States. Key U.S. data releases, such as the S&P flash services and manufacturing figures due on Monday, will help gauge the health of the world’s largest economy.
Bond Yields and RBI Actions
Bond yields also saw a notable decline last week, with the 10-year benchmark yield dropping 7 basis points to 6.6249%. This decline marks the largest drop in four months, driven by stronger-than-expected demand for government debt and a dovish stance from the Federal Reserve. The RBI‘s surprise announcement of a third bond purchase auction this month, alongside the rupee‘s appreciation, has positively impacted market sentiment.
This week, the 10-year yield is expected to trade within the 6.60%-6.65% range. The RBI is scheduled to purchase bonds worth 500 billion rupees ($5.82 billion) on Tuesday, continuing its efforts to provide liquidity to the banking system. This comes after the central bank infused over 5.50 trillion rupees through bond purchases and other monetary operations.
Retail Inflation and Interest Rate Expectations
One of the key factors influencing market sentiment is the recent dip in India’s retail inflation to 3.61% in February, the lowest level since July 2024. This drop, down from 4.26% in January, has fueled expectations that the RBI could implement another rate cut in April. The central bank had already reduced rates by 25 basis points in February, marking its first cut in nearly five years.
Analysts at ICICI Securities Primary Dealership suggest that the favorable growth-inflation mix could lead to additional policy rate cuts, potentially up to 75-100 basis points. This could signal a shift toward a more accommodative liquidity stance, further benefiting market sentiment for the Indian Rupee.
Key Economic Events to Watch
- India March HSBC Flash PMI (Manufacturing, Services, and Composite) – March 24, Monday
- U.S. March S&P Global Flash PMI (Manufacturing, Services, and Composite) – March 24, Monday
- U.S. March Consumer Confidence – March 25, Tuesday
- U.S. February Durable Goods Orders – March 26, Wednesday
- U.S. Final Q3 GDP Report – March 27, Thursday
- U.S. Weekly Jobless Claims – March 27, Thursday
- U.S. February Retail Sales – March 28, Friday
- U.S. February PCE Index & Core PCE – March 28, Friday
Conclusion
As we approach the final week of fiscal 2025, both the Indian Rupee‘s performance and bond yields remain pivotal in shaping market sentiment. With inflation easing and a potential rate cut from the RBI on the horizon, there is optimism in the market that the downward trajectory for yields will continue. The focus will now shift to upcoming economic data releases and central bank decisions, which could further influence currency trends and bond market developments.
Stay tuned for further updates as the market evolves throughout the week.
