The Reserve Bank of India (RBI) has stepped in firmly to stop a sharp fall in the rupee, giving the currency much-needed support after weeks of pressure. The central bank’s actions have helped calm the market, even as global factors remain uncertain. Government bond yields, meanwhile, are expected to move in line with RBI liquidity steps and foreign investor activity.
The rupee strengthened sharply late last week after the RBI increased its presence in the currency market. It ended Friday at 89.27 against the dollar, up more than 1 percent for the week. This followed a slide to record lows earlier in December, when the rupee briefly crossed 91 per dollar.
Traders said state-run banks sold dollars in the market, a move widely seen as RBI-backed intervention. At the same time, many investors who had bet against the rupee cut their positions, adding to the currency’s recovery.
Market participants expect importers to start buying dollars again to protect future payments, which could limit further gains for the rupee near the 89 level. Analysts say the RBI’s actions have slowed the fall, but a strong and sustained rise may be difficult without fresh foreign inflows.
The dollar strengthened globally towards the end of last week, breaking a three-week losing streak. This was driven mainly by weakness in the Japanese yen after the Bank of Japan raised interest rates, as expected.
In the bond market, the benchmark 10-year government bond yield ended the week at around 6.60 percent. Traders expect yields to move within a narrow range in the coming days, guided by RBI liquidity measures and foreign investor behaviour.
Bond prices have been under pressure since the RBI cut the repo rate by 25 basis points earlier this month. This took total rate cuts in 2025 to 125 basis points, the sharpest easing cycle since 2019. Many investors now believe the rate-cut phase is over and are cautious due to heavy government borrowing expected in the final quarter of the financial year.
The RBI has already injected about ₹1.45 lakh-crore into the system through bond purchases and foreign exchange swaps. Markets are watching closely to see if more liquidity support comes before the end of December.
Foreign investors sold around ₹109 billion worth of index-linked bonds in the first three weeks of December. However, some global funds see higher bond yields and a weaker rupee as attractive entry points for long-term investment.
