MUMBAI: The Indian rupee is likely to remain under pressure this week, with traders warning that a move past 90 could spur dollar demand from importers, while government bonds may fall following higher-than-expected state debt supply.
The rupee settled at 90.1950 on Friday, falling 0.4% for the week. It slipped past the 90 during Friday’s session, despite the Reserve Bank of India providing support by selling dollars at that level, according to traders.
The drop past 90 “has, in a way, shifted the balance”, and will likely lead to a pick up in dollar demand, a currency trader at a bank said.
“We have to see what the new equilibrium is,” he said.
Underlying dollar demand has continued to weigh on the rupee, keeping the RBI’s handling of depreciation pressures firmly in focus, similar to much of 2025.
“If the pressure on rupee continues, it will be interesting to see if RBI defends a particular level in a steadfast manner again,” said Abhishek Goenka, CEO at FX advisory firm India Forex and Asset Management.
“The RBI’s ability to intervene may be constrained by its forward (dollar) short positions.”
Meanwhile, investors largely shrugged off the U.S. raid in Venezuela and President Nicolas Maduro’s capture, with the dollar index and oil prices slightly higher, while U.S. equity futures and Treasury yields remained largely unchanged.
A slew of U.S. economic data is due for release this week, which analysts say may shape expectations for the Federal Reserve’s policy path in 2026.
Bond
The 10-year benchmark 6.48% 2035 yield settled at 6.6062%, up 5 basis points on the week.
Traders expect the yield to move in a 6.56%–6.65% range, with continued attention on the overall demand-supply scenario after the release of the state debt schedule and foreign flows.
Indian states will borrow 5 trillion rupees in January-March, which would be their highest ever quarterly borrowing, and also push annual debt sale to an all-time high.
Traders have continued selling bonds over the last few weeks, as they remained unsure about how the supply would be absorbed at a time when demand from most investor segments is easing.
The 10-year bond yield declined only 17 basis points in 2025, even as the RBI slashed repo rate by 125 basis points and conducted bond purchases, dollar-rupee swaps and cash reserve ratio reduction, leading to an aggregate inflow of 11.7 trillion rupees.
In focus will be the next set of actions from foreign investors, after they sold more than 123 billion rupees of index-linked bonds on a net basis in December – a record high – citing the drop in the rupee.
“Currency impact aside, we see good value in rupee bonds as yields have been largely stable,” said Yifei Ding, senior portfolio manager, fixed income at Invesco.
American Dollar Exchange Rate