Samvat 2082: Rupee, bond trajectories rest on RBI rate cut, US trade talk

With inflation easing and rate cuts on the horizon, bond yields may soften while the rupee steadies as trade negotiations with the US shape market sentiment

Domestic policy rate cut timeline and the trade talk with the US are expected to play an important role in Samvat 2082, according to foreign exchange and government bond dealers.

 

The Samvat for the Indian bond market is expected to be positive, with multiple rate cuts in picture.

 

India’s retail inflation eased to a 99-month low in September, sharply below the Reserve Bank of India’s (RBI’s) target band, strengthening the case for monetary easing in the coming quarters. Economists said the benign inflation backdrop has opened up space for multiple rate cuts, with the terminal policy rate expected to settle around 5 per cent by the end of next year. 

“Bond yields are expected to soften up to 6.25 per cent by December-end given there is space for rate cut,” said the treasury head at a private bank. “The yield curve will also flatten in the following months,” he added.

 

The central bank has reduced the allocation of ultra-long issuances of 30-50 years by 5.5 per cent, to increase the share of shorter-tenure bonds of 3-year and 5-year maturity in the second half of the current financial year (H2FY26). Market participants said the calendar matches prevailing investor appetite.

 

The government bond market saw a positive trend in Samvat 2081 during the year on the back of a cumulative 100 basis points (bps) rate cut by the RBI. The yield on the benchmark 10-year government bond fell by 33 bps during the period.

 

On the other hand, after hitting multiple record lows, the rupee is expected to recover as negative cues have been factored in by the foreign exchange market.

 

The rupee remained under pressure during Samvat 2081, depreciating by 4.36 per cent against the dollar during the period. The depreciation was mainly driven by a rise in global trade tensions. The onset and escalation of US reciprocal tariffs on Indian goods, raising effective duties up to 50 per cent in some sectors, weakened investor sentiment toward Indian markets.

 

Market participants said that even though there were no major developments on the India-US trade front, talks between US and Chinese officials gave hope to the market that trade issues could be settled peacefully.

 

“Trade talks are in focus right now. The rupee is expected to appreciate to 85.20 per dollar as all the negative cues are factored in,” said a market participant.

 

The central bank’s aggressive dollar sales through state-run banks last week triggered a wave of short covering, quickly reversing the bearish sentiment that had built up in recent days.