Worst Over For Indian Rupee, Bond Yields May Dip: Report

The worst is behind for the Indian rupee and bond yields may trend lower in the rest of the financial year, the head of treasury at Kotak Mahindra Bank said in an interview.

"The worst part of dollar strength globally is behind us, which means that currencies should not be unduly stressed against the dollar," said Rajeev Mohan, president and head - treasury & global markets at Kotak Mahindra Bank.

The local currency was trading at 82.75 against the dollar, after falling to record low of 83.29 in October. It has depreciated by over 11.5% so far in 2022 and is on course for its worst year in the last nine.

"The rupee will be in the range of 81.50 to 83.00 against the dollar for the rest of the fiscal. The base case is that the rupee will not hit a fresh record low in this fiscal year."

The treasurer expects the benchmark bond yield to trade in 7.00%-7.30% band for this fiscal and added that the benchmark yield may move close to 7% as most negatives are already factored in.

"The bond market is expecting the RBI to increase again in February and then take a pause. So that has already been factored in the current bond prices ... The driver will be general demand per se (as investors) want to lock-in. The bias will be towards a lower side of the range."

The Indian benchmark 7.26% 2032 bond yield was trading at 7.31%, up by nearly 85 basis points in 2022, but off its high of 7.62% hit in June.

"I think that the RBI will hold rates for some time. Markets will, however, run ahead of the RBI. The extent of probability of a rate cut will keep increasing and will drive bond yields (lower)," Mohan added.

He expects the government to announce gross borrowing of around 15 trillion rupees ($181.29 billion) for the next financial year, with a fiscal deficit target of below 6%.

The government aims to cap fiscal deficit at 6.4% for this financial year, with a revised gross borrowing target of 14.21 trillion rupees.

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