The Indian rupee is likely to face pressure this week, with the prospect of a Federal Reserve rate hike adding to headwinds from high oil prices, while bonds may see further selling pressure if economic growth strengthens.
The rupee strengthened 0.2 per cent last week to 95.3775 per US dollar, after remaining confined to a range of about 30 paisa in a repeat of a pattern seen in the previous two weeks.
Regular intervention by the RBI has made traders wary of chasing the rupee weaker, while demand from importers to hedge future dollar payments has capped upside.
“The rupee’s broader path is towards further weakness. For now, however, I expect largely rangebound trading until the RBI relents,” said Kunal Kurani, vice president at Mecklai Financial.
The rupee enters the week facing a more challenging external backdrop, with markets reassessing the prospect of a Federal Reserve rate hike as soon as next month.
US Fed Chair Kevin Warsh said on Friday that the central bank may need to raise rates if inflation remains above target, prompting investors to lift the odds of a hike at the September 15-16 policy meeting.
His comments have raised the stakes for incoming data ahead of the September meeting. This week’s calendar offers plenty for markets to assess, starting with the ISM manufacturing survey and followed by the ADP employment report and ISM services survey, before Friday’s August jobs report.
Oil, meanwhile, remains a headwind for the rupee, with Brent crude climbing back towards the $90-a-barrel mark.
Bonds to slide
Indian government bonds are likely to trade with a negative bias this week, after the benchmark bond yield scaled a more than two-month peak.
The 10-year bond yield ended at 6.9108 per cent on Friday, up 6 basis points, after surging by 9 bps in the previous week.
Traders expect the benchmark yield to move in the 6.85 per cent to 6.98 per cent range, with focus on India’s April-June GDP data due on Monday evening.
A Reuters poll predicts growth at 7.1 per cent, down from 7.8 per cent in January-March, but some economists expect a higher print, which could encourage the central bank to veer towards policy tightening if inflation rises.
India’s banking system liquidity surplus has averaged close to 1.3 per cent of deposits in August, raising concerns that the RBI may start withdrawing cash from the system.
“The increased liquidity is likely to be temporary, with continued FX intervention and unusually heavy demand for currency notes expected to resume in October-December,” Tanay Dalal, SVP – business & economic research, Axis Bank, said.
Bond market sentiment has turned cautious after the minutes of the RBI’s latest meeting released earlier this month showed policymakers are open to rate hikes if inflation risks materialise and broaden.
Governor Sanjay Malhotra said that evidence of such spillovers could warrant “policy tightening”, while Deputy Governor Poonam Gupta said a case for a hike may emerge this year.
“Although inflation remains within the RBI’s tolerance band, the central bank remains watchful of upside risks, particularly from elevated oil prices and other supply-side factors that could create broader inflationary pressures,” Vinay Pai, MD & fixed income head at Equirus Capital, said.
Published on August 31, 2026
