Re currently stable but outlook uncertain: Yes Bank

Shubhada Rao, Chief Economist, Yes Bank, said although the rupee looks a bit stable currently, the outlook out there is still a bit uncertain. She feels the government will have to raise its borrowings given the Sixth Pay Commission impact and the gross borrowing programme.

Excerpts from CNBC-TV18’s exclusive interview with Shubhada Rao:

Q: How do you expect the rupee to behave over the short-term? It has stayed in the range of about 40.15 for the better part of today's session.

A: In the last couple of days, the sentiment has somewhat stabilized in the US markets. We are seeing that impact in resumption of some capital flows. So, that is clearly reflecting in the rupee levels and we are currently seeing 40.11-40.13 levels.

I would expect the rupee to see 40 levels in the coming days. We may see some more capital inflows, which will keep the rupee around 40 levels.

Going forward, it is difficult to take a call whether it breaches the 40 mark because it depends on the kind of market moves and sentiment in the US markets. Although, that currently looks a bit stable, the outlook out there is still a bit uncertain.

Q: How would you expect the bond markets to behave from hereon? There has been some amount of cautiousness or nervousness there in the last few days?

A: For bonds, inflation is definitely the key worry. One more bad number coming out this week, which is likely to come close to 6% on inflation, is going to drive bond yields testing about 7.80 levels for the 10-year. In the short-end, we are definitely seeing some easing because of liquidity improving each day. But the 10-year is definitely under pressure.

The government’s borrowing programme was announced at Rs 96,000 crore. We may see pressure on that number getting revised upwards. So, given the Sixth Pay Commission impact and the gross borrowing programme, we may see some upward revision as the year unfolds.