Crude oil prices, US Fed policy decision to steer rupee, bonds this week

Indian government bonds and the rupee will be influenced this week by soaring crude oil prices and the U.S. Federal Reserve's upcoming policy decision. The rupee closed last week at 94.94 per dollar, unchanged from the prior Friday, after reaching a six-week peak of 94.30 per dollar. Despite recent rate hikes, experts believe these measures fail to bolster long-term confidence in the currency.

Factors such as inflation, growth, geopolitical tensions, external balance issues, and the rupee's fragility have prompted the Reserve Bank of India to reconsider its interest rate policy. However, rising oil prices and risk aversion continue to weigh on the rupee, as does uncertainty surrounding the Fed's stance. The benchmark Brent crude has hovered above $110 a barrel, keeping risk appetite subdued.

Concerns over India's external finances have tested the central bank's efforts to stabilize the rupee. U.S. government bonds may face mild selling pressure due to higher oil prices, which could signal a larger rate hike in the coming weeks. Traders anticipate the 10-year yield to stay within the 7.41% to 7.50% range. Indian 10-year bond yields have risen consecutively for 10 weeks, reaching 7.4740% last Friday.

If the central bank tightens policy further in December, market expectations for a 50-bps move could rise. Upcoming data points include September industrial output on October 28, September fiscal deficit data on October 30, September durable goods on October 27, October consumer confidence on October 27, and September new home sales on October 27. The Federal Reserve's interest rate decision is scheduled for October 28 at 11:30 p.m.