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What is the story about?
The Indian rupee opened 22 paise stronger on Monday (January 2)at 91.76 against the US dollar, as the 10-year government bond yield rose eight basis points to a one-year high of 6.78%. Market participants said the Reserve Bank of India (RBI) was reportedly selling dollars offshore to support the local currency amid volatility.
The movement comes in the wake of the Union Budget 2026-27, which announced a higher-than-expected government borrowing programme. Finance Minister Nirmala Sitharaman unveiled plans for the Centre to borrow a record ₹17.2 lakh crore in the financial year beginning April 1, up 18% from the current year and above market expectations of around ₹16.3-16.5 lakh crore.
The sharp increase in gross borrowing has raised concerns about potential demand-supply imbalances in the bond market. While the government plans to maintain fiscal consolidation, pegging the fiscal deficit at 4.3% of GDP for FY27 versus 4.4% this year, higher redemptions and net borrowing needs have pushed yields higher.
Net borrowing is estimated at ₹11.7 lakh crore, compared with ₹11.3 lakh crore this year, while redemptions are projected to surge nearly 70% to around ₹5.5 lakh crore. Treasury bill issuance is also set to rise to ₹1.3 lakh crore, compared with none in the current year.
The rupee has been under pressure recently, having slid to a record low of 91.9875 per dollar on Friday (January 30) and falling over 2% in January. Analysts cited weak capital flows, tight domestic liquidity, and broad-based risk-off sentiment in global markets as factors keeping the currency under stress.
“Rupee could have comfortably weakened beyond 92, but RBI intervention and market reluctance to test that level are holding it back,” said a currency trader at a Mumbai-based bank.
Despite RBI support, market participants expect the rupee’s weakening trend to continue in the near term, while Indian bonds may face further pressure when markets open.
-With agencies inputs
The movement comes in the wake of the Union Budget 2026-27, which announced a higher-than-expected government borrowing programme. Finance Minister Nirmala Sitharaman unveiled plans for the Centre to borrow a record ₹17.2 lakh crore in the financial year beginning April 1, up 18% from the current year and above market expectations of around ₹16.3-16.5 lakh crore.
The sharp increase in gross borrowing has raised concerns about potential demand-supply imbalances in the bond market. While the government plans to maintain fiscal consolidation, pegging the fiscal deficit at 4.3% of GDP for FY27 versus 4.4% this year, higher redemptions and net borrowing needs have pushed yields higher.
Net borrowing is estimated at ₹11.7 lakh crore, compared with ₹11.3 lakh crore this year, while redemptions are projected to surge nearly 70% to around ₹5.5 lakh crore. Treasury bill issuance is also set to rise to ₹1.3 lakh crore, compared with none in the current year.
The rupee has been under pressure recently, having slid to a record low of 91.9875 per dollar on Friday (January 30) and falling over 2% in January. Analysts cited weak capital flows, tight domestic liquidity, and broad-based risk-off sentiment in global markets as factors keeping the currency under stress.
“Rupee could have comfortably weakened beyond 92, but RBI intervention and market reluctance to test that level are holding it back,” said a currency trader at a Mumbai-based bank.
Despite RBI support, market participants expect the rupee’s weakening trend to continue in the near term, while Indian bonds may face further pressure when markets open.
-With agencies inputs
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