Fed rate cut eases pressure on rupee; India expected to stay stable on FX and bonds — Report

The US Federal Reserve’s latest 25-basis-point rate cut has stirred a complicated global monetary backdrop, but the ripple effect on India is expected to be far more measured, according to a fresh analysis by YES Bank’s Economics Research team. The report says the sharpest phase of pressure on the rupee may now be behind us, with gold imports and non-oil, non-gold imports likely to cool through the rest of the financial year. A steadier dollar, improving external flows and a calm bond market are expected to anchor domestic financial conditions in the coming months.

Fed split on future cuts, signals a cautious cycle ahead

YES Bank notes that the December policy vote within the Fed was unusually divided, with six members preferring to pause rather than cut. Projections for 2026 also revealed deep uncertainty within the committee. This fracture, combined with shifting labour-market trends in the US, suggests the threshold for further easing remains high.

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While the dollar softened after the rate cut, the report argues that 2026 currency moves will be shaped more by growth differentials and fiscal conditions than by coordinated global easing.

Rupee outlook steadies as import pressures ease

For India, the backdrop appears relatively supportive. The bank expects gold imports and non-oil, non-gold imports to moderate, reducing pressure on the external account.

A more stable USD/INR around the 90.00 mark may also encourage foreign portfolio investors to re-enter the market. “Foreign inflows could increase as FPIs may be more comfortable bringing in flows around USD/INR levels of 90.00,” the report noted.

Repatriation flows in the March quarter are also likely to support the currency. YES Bank projects a trading range of 89.75–90.50, with the rupee likely to close FY26 near 90.00.

Bond market calm as RBI holds its line

Domestic bond yields continue to trade with a mild downward bias after the RBI left interest rates unchanged. Markets are no longer pricing in further rate hikes and now look to OMO purchases as the key liquidity support mechanism.

With the next Monetary Policy Committee meeting scheduled only after the Union Budget, attention will shift to FY27’s elevated borrowing and redemption calendar, which could drive yield movements. YES Bank expects the 10-year G-sec to stay above 6.50 per cent, finishing FY26 in the 6.45–6.55 per cent band.

The report concludes that while the Fed’s move edges the global economy closer to the end of the easing cycle, India’s macro-financial setup remains resilient and well-cushioned. A stable rupee, contained import pressures and a predictable bond market are likely to define the months ahead.