MUMBAI, Dec 11 (Reuters) - Indian government bond yields and the rupee will take cues from domestic and U.S. inflation data this week as well as from the policy decisions by the Federal Reserve and other major central banks.
Economists estimate U.S. inflation rose 0.1% month-on-month in November, with core inflation up 0.2%. But investors believe that data, due on Tuesday, is unlikely to change the Fed's policy view.
Indeed, investors have priced in a nearly 45% chance that the Fed will begin cutting rates from March, up from 18% a month back, and have baked in 50% chance of 125 basis points worth of rate cuts in 2024.
Much like the Fed, the European Central Bank and Bank of England are also expected to maintain status quo on Thursday.
"Running into the monetary policy of U.S., BOE and ECB next week, we expect the rupee to be in a small range." Anil Bhansali, head treasury at Finrex Treasury Advisors, said.
"The RBI (Reserve Bank of India) will be supporting the rupee at 83.40 and oil companies and others will be buying on dips on USD/INR,"
The currency ended 0.1% lower last week at 83.3850.
The bets of Fed rate cuts eased after U.S. job growth accelerated in November while the unemployment rate fell to 3.7%, signs of underlying labor market strength that suggested financial market expectations of an interest rate cut early next year were probably premature.
The 10-year U.S. Treasury yield rose, and was around 4.25% mark, after the data on Friday. Traders will continue to monitor Treasury yields this week.
India's 10-year benchmark bond yield also ended two basis points lower last week, at 7.2697%, after rising for two preceding weeks.
Traders expect the yield to be in a 7.22%-7.32% range until the Fed's policy decision, with the focus on its guidance on rate cuts next year.
The RBI, on the other hand, flagged on Friday that monetary policy would remain tight as it monitors inflation risks. But the central bank also, as expected, did not change its rate or policy stance despite a slightly hawkish tone on inflation.
It also raised its fiscal year growth forecast on the back of a robust economy.
India's retail inflation likely picked up to 5.70% in November, from 4.87% in October, due to higher food prices, a Reuters poll showed.
However, some economists, including from Barclays, peg the reading at 6.15%, above the RBI's 2%-6% target range. KEY EVENTS: ** India Oct industrial output - Dec. 12, Tuesday ** India Nov CPI inflation - Dec. 12, Tuesday (5:30 p.m. IST) (Reuters poll 5.7% on-year)
** U.S. Nov CPI - Dec. 12, Tuesday (7:00 p.m. IST) (Reuters poll 0.2% on-month)
** U.S. Nov PPI machine manufacturing - Dec. 13 (7:00 p.m. IST)
** Bank of England bank rate - Dec. 14, Thursday (5:30 p.m. IST)(Reuters poll: No change expected)
** European Central Bank monetary policy decision - Dec. 14, Thursday (6:45 p.m. IST)
** U.S. Fed Federal Reserve policy decision - Nov. 1, Wednesday (11:30 p.m. IST) (Reuters poll: No change expected)
** U.S. Nov import prices - Dec. 14 Thursday (7:00 p.m. IST)
** U.S. initial weekly jobless claims week to Dec. 4 - Dec. 14, Thursday (7:00 p.m. IST)
** U.S. Nov retail sales - Dec. 14, Thursday (7:00 p.m. IST)
** U.S. Nov industrial production - Dec. 15, Friday
** U.S. Dec S&P Global manufacturing, services and composite PMI flash - Dec. 15, Friday (8:15 p.m. IST) (Reporting by Dharamraj Dhutia and Nimesh Vora; Editing by Savio D'Souza)
