INDIAN RUPEE IS EXPECTED TO FACE LOWER DEPRECIATION PRESSURE IN THE COMING MONTHS

Published on Nov 22, 2023 11:51

The finance ministry stated in its latest update that concurrent rate hike cycle across the globe is adversely affecting sovereign bond yields. Bond yields are expected to remain elevated in the current situation of higher-for-longer interest rates. However, Indian G-sec markets have remained relatively insulated, with yields not responding in equal measure to the RBI�s tightening, as US treasury yields have to the Federal Reserve rate hikes. India-US sovereign yield spreads have thus consistently narrowed since the beginning of this tightening cycle, indicating a reduced risk premium between India and the US. This is primarily due to the RBI�s relatively tighter control over inflation and the Government of India�s commitment to fiscal discipline. A reduced risk premium implies that the Indian Rupee is expected to face lower depreciation pressure in the coming months.