Fed rate cut offers relief for rupee, YES Bank sees stable INR, steady bond yeilds

YES Bank Research says the Fed’s 25 bps rate cut is unlikely to trigger volatility for India, with pressures on the rupee easing and currency seen stable near 90. Bond yields are expected to hold firm as markets anticipate no further RBI action and steady inflows

Fed rate cut eases pressure on rupee; India seen stable on FX, bonds: Report

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Fed rate cut eases pressure on rupee; India seen stable on FX, bonds: Report

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The US Federal Reserve's latest 25-basis-point rate cut has set the stage for a complex global monetary backdrop, but its implications for India are expected to be relatively stable, according to analysis from YES Bank's Economics Research team.

"For India, we think that the sharpest pressure for the INR is over as we expect gold imports as also non-oil non-gold imports to moderate over the remaining part of the year." noted the report.

The report notes that the Fed's December policy vote was deeply divided, with six members even preferring a pause and significant uncertainty visible in projections for 2026.

This fracture, combined with evolving US labour-market data, indicates that the bar for further rate cuts by the Fed remains high.

Despite the softer dollar post-cut, the report highlights that currency movements in 2026 will be driven more by relative growth and fiscal dynamics than by synchronised global monetary easing.

For India, this environment is expected to ease pressure on the rupee.

YES Bank expects gold and non-oil, non-gold imports to moderate, while foreign portfolio investors could bring fresh inflows as the USD/INR stabilises near 90.00.

The report says "foreign inflows could also increase as FPIs may be more comfortable in bringing in flows around the USD/INR levels of 90.00".

Repatriation flows in Q4 are also likely to support the currency.

The bank projects the USD/INR to trade in the 89.75-90.50 range, with a high likelihood of ending near 90.00 by March 2026.

On the domestic bond front, Indian yields have been trading with a negative bias after the RBI maintained policy rates.

Markets expect no further rate action from the central bank and see liquidity support through OMO purchases as the key stabiliser.

With the next MPC meeting scheduled after the Union Budget, focus will turn to elevated redemption and borrowing requirements for FY27.

As per the report, 10-year G-sec yields are unlikely to fall sustainably below 6.50 per cent, and may end FY26 in the 6.45-6.55 per cent range.

Overall, the Fed's move signals the nearing end of the global easing cycle, but for India, the impact is expected to be moderate, with currency stability and steady bond-market dynamics in the months ahead.

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