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Rupee Breaches 95, Bond Yields Cross 7% as India Markets See 'Regime Shift'

Union Bank of India reports a significant 'regime shift' in India's financial markets, marked by the rupee depreciating past Rs 95 per dollar and the 10-year government bond yield rising above 7%. The RBI has intervened with measures like capping banks' net open positions to curb speculative volatility driven by geopolitical tensions and high oil prices. The report suggests short-term tools such as special dollar swaps and medium-term strategies like promoting rupee trade settlement to bolster stability. Despite substantial RBI liquidity infusion in FY26, UBI emphasizes that conserving forex reserves and targeted policy will be crucial amid ongoing global uncertainty.

Key Points: Rupee Hits 95, Bond Yields 7% in Market 'Regime Shift': UBI

  • Rupee breaches Rs 95/$ for first time
  • 10-year bond yield crosses 7% threshold
  • RBI caps bank positions to curb speculation
  • War risks and oil prices drive volatility
  • UBI suggests dollar swaps and rupee trade to reduce shock
2 min read

Rupee breaches 95, bond yields cross 7% as India markets enter 'Regime Shift': UBI

UBI report warns of a 'regime shift' in India's financial markets as the rupee breaches Rs 95/$ and bond yields cross 7% amid global risks.

"regime shift across currency and rates markets - Union Bank of India Report"

New Delhi, April 1

India's financial markets are undergoing a significant shift in trading dynamics amid escalating global war-related risks, with the rupee breaching key levels and bond yields hardening, according to a report by Union Bank of India.

The report noted that the last trading session of FY26 marked a "regime shift" across currency and rates markets, with the rupee breaching the Rs 95 per dollar mark for the first time and the 10-year government bond yield moving above the 7 per cent threshold.

On an annual basis, the rupee depreciated nearly 10 per cent in FY26, while the benchmark bond yield rose by 45 basis points despite a 100 basis point rate cut by the Monetary Policy Committee during April-December 2025, indicating tightening financial conditions.

UBI said the rupee is acting as a "shock absorber" amid war-driven external pressures, but added that the burden of adjustment is likely to be shared, with markets showing increasing tolerance for higher interest rates in the coming months.

The Reserve Bank of India (RBI) has also stepped in with regulatory measures to stabilise the currency, including capping banks' net open position in the rupee at USD 100 million in onshore forward markets. The move is aimed at curbing speculative and arbitrage trades that have been amplifying volatility.

However, despite these measures, pressure on the rupee persists due to elevated crude oil prices and global risk aversion linked to geopolitical tensions, the report said.

UBI indicated that policymakers may increasingly turn to unconventional and macro-prudential tools, drawing parallels with the 2013 "taper tantrum" period when the RBI deployed a mix of liquidity tightening, rate measures and regulatory interventions to stabilise the currency.

Among the short-term measures suggested are a special dollar swap window for oil marketing companies, curbs on gold imports, and revival of FCNR deposit schemes to attract foreign currency inflows.

Over the medium term, the report emphasised the need to promote rupee-based trade settlement, strengthen foreign exchange swap lines with major economies, monitor rising FDI outflows, and encourage oil price hedging to reduce vulnerability to external shocks.

The report also highlighted that the RBI infused nearly Rs 15 lakh crore of liquidity during FY26 through measures such as CRR cuts, open market operations and forex swaps, underscoring the scale of policy response to stabilise markets.

Despite adequate foreign exchange reserves, UBI cautioned that conserving buffers and deploying targeted measures would be critical amid continued uncertainty in global markets.

- ANI

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Reader Comments

P
Priya S
The report mentions a 10% depreciation in FY26. While the RBI is trying, it feels like a constant battle. As a small business owner importing raw materials, my costs are skyrocketing. Need more concrete, long-term solutions, not just short-term swaps.
R
Rohit P
"Shock absorber" is a nice term, but it's our pockets that absorb the shock! Bond yields above 7% might mean better returns for fixed deposits soon, but loans will get costlier. Tough balancing act for the MPC. 🤔
S
Sarah B
Interesting analysis. Drawing parallels to the 2013 taper tantrum shows this is a serious global liquidity event. The focus on macro-prudential tools over just rate cuts is the right approach in such volatile times. Hope other economies are watching.
K
Karthik V
The report suggests curbs on gold imports again. This always feels like a temporary fix that hurts a cultural sentiment. Instead of curbs, why not make other investment avenues more attractive? Strengthening the economy is the real answer.
M
Meera T
Rs 15 lakh crore liquidity infusion is a staggering number! It shows the scale of the response needed. While we have forex reserves, using them wisely is key. Promoting rupee-based trade with friendly nations should be top priority. Jai Hind! 🇮🇳

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