Indian Rupee: Support from flows and policy backdrop – DBS

DBS Group Research economist Radhika Rao notes that India’s 10Y government bond yield has remained confined between 6.90% and 7.05% as domestic and global drivers offset each other. She highlights shifting Federal Reserve expectations, RBI’s non-hawkish policy stance, tighter system liquidity, expected FCNR(B) inflows, offshore borrowings, and potential Bloomberg index inclusion as key factors supporting Indian bonds and the Rupee.

Yields capped by domestic and global forces

"Bonds are caught between domestic and global catalysts, which has kept the 10Y yield within 6.9-7.05% in recent sessions, although off recent highs."

"Risk rallies lost momentum as hawkish FOMC messaging drove markets to bring forward rate-hike expectations, though RBI MPC minutes reinforced our expectations that policy tightening risks are not imminent."

"System liquidity has meanwhile tightened sharply due to advance tax outflows, although conditions are expected to improve once non-resident FCNR(B) inflows start coming through."

"We expect the next leg of gains in the INR bonds and currency on a pickup in non-resident deposit and offshore borrowings, spurred by the concessional swap facilities."

"Sentiment has been supported in part by expectations that Indian government bonds could be considered for inclusion in Bloomberg’s global bond indices."

"In the meantime, the rupee has retained its recent gains, while foreign investors have turned constructive on INR debt, with inflows exceeding $3bn since April 2026."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)