The Indian rupee and government bonds will remain under pressure from elevated oil prices and energy supply woes as the West Asia war enters its fourth week
The Indian rupee and government bonds will remain under pressure from elevated oil prices and energy supply woes as the Middle East war enters its fourth week.
The rupee, which slid past 93 per dollar in its worst week in over three years, is set to extend losses, though traders remain wary of central bank intervention as the currency has dropped about 3% since the Iran war began.
More than 2,000 people have been killed during the war that the U.S. and Israel launched on February 28, which has upended markets and spiked energy costs. Attention is likely to remain firmly on oil prices this week, which rose to $112 per barrel on Friday, up over 50% this month.
The rupee is biased towards further losses, but given last week’s sharp slide, the central bank may intervene to deter a buildup of speculative positions, a trader at a state-run bank said.
Preliminary purchasing manager indexes will be in focus given investors’ interest in timely updates on activity amid the energy supply uncertainty, Goldman Sachs said in a note.
PMI data for India is due on Tuesday, with economists polled by Reuters expecting a nearly flat reading from the previous month, which had shown that both manufacturing and services PMIs remained in expansion territory.
India’s benchmark 10-year yield ended at 6.7369% on Friday, posting its biggest weekly jump in three months as a war-triggered spike in oil prices and absence of the RBI largely eroded investor confidence.
Traders anticipate the yield will move in a 6.70% to 6.80% range in the last full week of the financial year, with oil prices and war-related developments providing further triggers.
The RBI net bought bonds worth 195 billion rupees ($2.08 billion) in the week ending March 13, after buying for 572 billion rupees in the preceding week, its biggest-ever weekly buying, as the central bank sought to stabilize the market roiled by the Middle East war.
Overnight index swap rates have been surging on heavy paying interest, with the key one-year and five-year rates posting their third consecutive weekly rise.
Even as the OIS is factoring in a couple of rate hikes, analysts say the market is overestimating the likely impact of the Iran war on domestic monetary policy.
”Panic around oil and inflation is unlikely to set in merely on a short-lived spike. The more relevant threshold is whether crude moves meaningfully above $100 per barrel and, more importantly, stays there for a sustained period beyond 2–3 months,” said Anurag Mittal, senior executive vice president & head – fixed income, UTI AMC.
(Except for the headline, this story has not been edited by Firstpost staff.)
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