Indian bonds fall to a two-month low after a fall in the rupee and doubts about interest rate cuts

Indian government bonds fell on Monday, with the benchmark closing at the lowest level in more than two months, as robust economic growth data dampened hopes for rate cuts and a plunging rupee added to pressure.The benchmark 10-year yield rose almost 3 basis points to close at 6.5732%, the highest level since September 30. On Friday, the interest rate ended at 6.5463%.

Bond yields rise when prices fall.
Data on Friday showed India’s economy grew 8.2% in the July-September period, the fastest pace in 18 months, prompting many market participants to scale back interest rate cuts.

The Reserve Bank of India’s interest rate panel will meet on December 3 and 5. The country already cut interest rates by 100 basis points between January and June, but has since shelved the policy.

“The strong GDP data reaffirmed our call for the RBI to remain on pause in the December policy,” Gaura Sen Gupta, chief economist at IDFC First Bank, wrote in a note.“The strong growth in H2FY26 and the positive growth momentum generated by the GST cut indicate that the need for a rate cut does not exist.”

Moreover, the rupee fell to a record low of 89.7575 during the day, pressured by expiring non-deliverable forward positions in addition to a continued bearish pall on the currency as India remains one of the few major economies without a trade deal with the US.

The RBI has also fueled market uncertainty by draining liquidity from the banking system, dampening the impact of the latest cash reserve ratio cut.

PRICES

Indian overnight interest rates rose 2 to 5 basis points on Monday, pressured by the falling rupee and fading hopes for rate cuts.

The one-year OIS ended at 5.4850%, while the two-year swap closed at 5.5075%. The five-year interest rate rose by 4.75 basis points to 5.8050%. ($1 = 89.4630 Indian Rupees)