Swati Bhagat

MUMBAI (Reuters – Indian bond yields rose, but the rupee dropped on the week. The Russian invasion of Ukraine weighed down investor sentiment. Additionally, the Indian government’s decision that it will continue with its last debt sale for this year hurt bonds.

After Moscow launched the largest attack against a European country since World War Two and tens to thousands fled their homes, Ukrainian forces now face Russian invaders from three directions.

India’s 10-year benchmark bond yield was at 6.75 percent, just 1 basis point lower than its prior close. However, yields for the week were higher by 9 basis points.

A senior trader at a private bank stated that “The auction passed today, but the government can choose to borrow more this fiscal year,”

After having cancelled two previous auctions because of a cash surplus, the government was able to raise 230 billion rupees in the latest scheduled debt auction.

However, traders said that the minutes of the dovish committee on monetary policy released after market hours Thursday supported sentiment in spite of the negativity.

India’s third COVID-19 wave had caused some slowdown in economic growth, and the trend of inflation being downwardly influenced. The country’s monetary committee decided to maintain its policy rate, and its stance.

Aditi Nayar (chief economist, ICRA) stated that while the current escalation in geopolitical tensions could further inflame the prices and keep inflation high in the coming months, it appears unlikely that the MPC member members will choose growth over taming pressures arising out of global forces.

The majority of economists expect that rates will remain steady at the April policy meeting, but they are open to tightening over the course of the year depending upon the inflation situation and oil prices.

On Friday, oil prices dropped after a sharp increase in the session. This was due to concern about possible global supply disruptions resulting from Russian sanctions.

India imports nearly two-thirds (23%) of its oil, which can cause a large current account deficit. It also contributes to rising inflation.

Partially convertible rupee was at 75.29/30, which is a slight increase from its closing of 75.65 the previous session. However, the unit fell 0.8% over the course of this week.

Emkay Global Financial Services analysts wrote that the SPOT-pair will trade under pressure, and would test 76.25 to 76.25 levels over the next week.

“Levels close to 75 represent crucial support, which if broken can trigger a correction toward 74.60 levels.”