The rupee is hurt by the change of leadership at the RBI corner office, but bond yields are raised.

The Indian rupee started the day on a weaker note, opening at 84.7870 against the U.S. dollar, lower than Monday's closing of 84.7212. This continuing decline reflects the sustained pressures faced by the currency over the past few months. Simultaneously, the 10-year benchmark bond yield opened at 6.6982 percent, slightly down from the previous session's close of 6.718 percent. These movements indicate a cautious sentiment in the markets as investors weigh global economic factors and domestic fiscal policies. A strong U.S. dollar, driven by the Federal Reserve's monetary tightening, and foreign portfolio investor (FPI) outflows have compounded the challenges for the Indian currency and bond market. Over the last several months, the rupee has faced a consistent downward trajectory, prompting the Reserve Bank of India (RBI), under Governor Shaktikanta Das, to intervene in both spot and forward markets. These interventions are designed to curb excessive volatility and stabilize the rupee, ensuring minimal disruption to trade and economic activity. Despite these measures, the rupee depreciated by 1.3 percent between April and November of 2024-25, largely driven by global dollar strength and FPI selling pressures. Governor Das, in his December 6 monetary policy review, acknowledged these challenges, emphasizing that the central bank's efforts have helped maintain relative stability for the rupee compared to other emerging market currencies. Interestingly, the rupee’s performance during April-November 2024-25 demonstrated resilience, making it the least volatile currency among its emerging market peers. With a coefficient of variation of just 0.4 percent, the rupee outperformed currencies such as the Chinese yuan, Turkish lira, and Indonesian rupiah in terms of stability. This reflects the RBI’s proactive approach and India’s strong macroeconomic fundamentals. While the depreciation has posed challenges, the government and central bank have ensured adequate foreign exchange reserves and closely monitored speculative activities to contain volatility effectively. The depreciation of the rupee has far-reaching implications for the economy. A weaker currency raises import costs, particularly for crude oil, which could push inflation higher and strain consumer purchasing power. Conversely, it makes Indian exports more competitive, benefiting sectors like IT, textiles, and pharmaceuticals. The rising bond yields add another layer of complexity, indicating higher borrowing costs for the government and private sector. Balancing these dynamics will require a strategic mix of fiscal and monetary policies to address inflation, maintain market confidence, and foster growth amidst a challenging global economic landscape.