Yields climb, rupee softens ahead of RBI rate call; guidance will be key, say market strategists

While liquidity support through OMOs is anticipated, analysts warn the rupee may continue to weaken due to trade uncertainty and capital flow pressures, with levels near 90 per dollar seen as possible in 2025. By Latha Venkatesh With the Reserve Bank of India (RBI) set to announce its policy decision on December 5, market experts are closely tracking signals from both the bond and currency markets. Rising yields and a weakening rupee have drawn attention ahead of the central bank’s move. Suyash Choudhary, Head of Fixed Income at Bandhan Mutual Fund, expects a 25-basis point rate cut, in line with earlier policy communication. However, he said the messaging will drive market direction. “What the bond market will also look for is commentary that does not transmit volatility or uncertainty to the market… a benign rate cycle is in play and will remain in play for some time,” he noted. He believes the RBI still holds concerns about growth momentum in the second half of the year. Also Read | Citizen’s MPC sees stronger case for RBI rate cut, but high growth keeps panel divided He added that the market expects around ₹2 lakh crore in Open Market Operation (OMO) purchases in the next three months to support liquidity — which he called a “fair expectation.” Choudhary sees limited movement in the 10-year bond and said the best opportunities lie in the five-to-eight-year curve, which would benefit most from rate cuts and OMOs. If the RBI holds rates, market reaction will depend on guidance — a dovish tone may keep yields stable, while signals of an early end to easing could prompt a 10 bps sell-off. He said investors should avoid overinterpreting the recent upmove in yields after the second-quarter gross domestic product (GDP) data. The rupee has already fallen nearly 4.5% in 2025, even as other Asian emerging market currencies gained. Dhiraj Nim, Economist and FX Strategist at ANZ Research, believes more depreciation is ahead. A ₹90 per US dollar level is “very much on the cards,” Nim said, citing a weak outlook for trade and capital flows. “Not only is future economic growth at risk… we’re also experiencing a widening of the current account deficit,” he explained. Also Read | Shikhara’s Rahul Chadha says RBI cut likely, FII mood hinges on tariff rollback Nim said a rate cut would still help the Indian economy and should be handled separately from currency management. “Rate cut for the economy and FX tools for FX. Let’s keep that separate,” he said, adding that foreign investors may remain cautious until tariff-related growth concerns ease. He also pointed to export competitiveness as a policy goal. Although the rupee’s real effective exchange rate is below 100, he said inflation expected from mid-2026 may erode that advantage, making gradual spot depreciation necessary. Nim forecasts ₹91.5 per dollar by end-2026, assuming only moderate US dollar strength. For the full interview, watch the accompanying video Catch all the latest updates from the stock market here (Edited by : alphadesk ) Check out our in-depth Market Coverage, Business News & get real-time Stock Market Updates on CNBC-TV18. Also, Watch our channels CNBC-TV18, CNBC Awaaz and CNBC Bajar Live on-the-go!