The Indian rupee and government bond markets opened under pressure on 1 December 2025, as investors positioned cautiously ahead of the Reserve Bank of India’s (RBI) monetary policy announcement scheduled later this week.
Amid rising global uncertainty, shifting interest-rate expectations, and lingering inflation concerns, traders showed a risk-off approach, pushing the rupee slightly lower and 10-year government bond yields marginally higher.
The move reflects heightened sensitivity to the RBI’s next steps, which could shape India’s economic and financial landscape for early 2026.
Rupee Weakens as Traders Stay Defensive
The Indian currency opened weaker as forex traders reduced exposure ahead of the policy announcement.
Key factors weighing on the rupee:
1️⃣ Global Dollar Strength Eases Only Slightly
Although the dollar weakened last week, traders remain cautious due to:
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Uncertain Federal Reserve policy
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Weakening global manufacturing data
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Volatile capital flows
The rupee often reacts sharply to shifts in the dollar index.
2️⃣ Risk-Off Sentiment Across Emerging Markets
Global markets have turned cautious due to:
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Asian manufacturing slump
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Weak global demand
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Concerns about geopolitical tensions
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Commodity price fluctuations
This has pushed some investors away from emerging-market currencies like the INR.
3️⃣ Foreign Portfolio Outflows
Ahead of policy decisions, foreign investors typically trim bond positions.
Some short-term outflows were seen today from both equities and debt markets.
Bond Yields Rise as Traders Brace for Policy Signals
The 10-year benchmark government bond yield rose slightly as traders priced in potential RBI caution.
Why bond yields are rising:
1️⃣ Inflation Concerns Not Fully Eased
Despite better inflation prints, food-price pressures remain a challenge, making the RBI cautious about rate cuts.
2️⃣ Expectations of Policy Hold
Markets widely expect the RBI to:
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Maintain current repo rate
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Keep liquidity conditions tight
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Signal a data-dependent approach
This keeps yields on the higher side.
3️⃣ Global Bond Market Volatility
Bond yields in the U.S. and Europe have risen due to:
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Uncertain rate path
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Slowing growth
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High government borrowing needs
Indian bonds tend to follow global cues.
What Is Expected From the Upcoming RBI Policy?
Analysts expect the upcoming policy to focus on inflation control, liquidity management, and growth stability.
The RBI is likely to:
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Hold the repo rate steady
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Emphasize vigilance on inflation
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Continue managing excess liquidity
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Monitor global uncertainties closely
Rate cuts — if any — are likely only in mid-2026.
Market Impact of RBI’s Decision
Depending on the RBI’s tone, markets may react in the following ways:
⭐ If RBI is hawkish:
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Rupee may weaken further
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Bond yields could rise
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Banking stocks may face mild pressure
⭐ If RBI signals future easing:
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Rupee may recover
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Bond yields may fall
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Rate-sensitive sectors (real estate, autos) could rally
Analyst Commentary
“The RBI is expected to maintain a cautious stance. Inflation risks remain, and the global environment is still uncertain,” said a senior FX strategist in Mumbai.
“Bond traders want clarity on liquidity management. The policy tone will determine near-term yield movement,” noted a debt-market expert.
Outlook for December 2025
Rupee
May remain range-bound until RBI clarity emerges.
Bond Yields
Likely to move between 7.15% and 7.28% in the short term.
Equity Markets
Could show mild volatility as interest-rate sensitive stocks react to policy guidance.
Conclusion
On 1 December 2025, the Indian rupee and bond markets came under pressure as investors cautiously awaited the RBI’s monetary policy announcement. With inflation concerns, global uncertainty, and interest-rate expectations in play, traders are positioning defensively.
The RBI’s decision later this week will be a critical factor shaping India’s financial markets as the country enters 2026.
FAQs
Q1: Why did the rupee weaken today?
Due to risk-off sentiment, global uncertainty, and cautious positioning ahead of the RBI policy.
Q2: What happened to bond yields?
They rose slightly as traders expect the RBI to retain a tight policy stance.
Q3: Will RBI cut rates this week?
Unlikely — most analysts expect a status quo on rates.
Q4: What should investors watch?
RBI commentary on inflation, liquidity, and growth trends.
