Crude oil prices, US Fed policy decision to steer rupee, bonds this week

Soaring oil prices and the US Federal Reserve's upcoming policy decision will be key drivers of the Indian rupee and government ​bonds this week, while domestic liquidity conditions pose an additional challenge for bonds.

The rupee settled at 94.94 ‌last week, little changed from the previous Friday, after climbing to a ​six-week high of 94.30 per dollar.

The local currency had strengthened steadily ⁠after the central bank announced a host of currency-supportive measures.

"In contrast to the rate hike, we do not think the latest measures are helpful to foster long-term confidence," Carl Vermassen, a portfolio manager at ‌Vontobel said.

"Given the changing inflation picture, strong growth, geopolitical environment, external balance challenges and the fragility of the rupee, changing tack at the level of ‌interest rate policy was timely."

Still, a surge in oil prices and broader risk ‌aversion weighed ⁠on the currency late last week, with both factors likely to remain ⁠in focus.

The benchmark Brent crude has held well above $110 a barrel, keeping risk appetite fragile. Concerns over India's external finances persist, testing the Reserve Bank of India's efforts to stem the rupee's losses.

The Fed's policy decision ​will be another focus, with markets looking ‌beyond an expected pause for clues on whether further rate hikes remain on the table this year.

Any hawkish shift could lift US yields and dollar, adding to pressure on rupee.

BONDS

Indian government bonds could remain under mild selling pressure as elevated oil ‌prices fuel expectations of a larger rate hike in the coming weeks, weighing ​on investor sentiment.

Traders expect the benchmark 10-year yield to move in the 7.41% to 7.50% range, with oil prices and liquidity conditions in focus.

India's ⁠benchmark 10-year bond yield rose 9 basis points last week, its 10th consecutive weekly rise, to close at 7.4740% on Friday.

It surged a total of 62 bps over the previous ‌nine weeks, extending its longest-ever run of weekly increases, according to data available since 1998.

Bond sentiment has been taken a hit since the domestic central bank raised policy rate, changed its stance, and followed it with hawkish commentary from Governor Sanjay Malhotra.

Market calls for a 50-bps move in December have risen, with the central bank expected to use interest rate as a defence mechanism to protect rupee.

"We expect 2-3 more policy rate hikes in ‌this cycle, that will help... Policy tightening is the appropriate response to recent exogenous shocks," said Aron Hurd, ​a senior currency portfolio manager at State Street Investment Management.

KEY FACTORS:

India

** September industrial output – October 28, Wednesday (4:00 p.m. IST)

** September fiscal deficit data - October 30, ⁠Friday (3:30 p.m. IST) U.S. ** September durable goods - October 27, Tuesday (6:00 p.m. IST)

** October consumer confidence - October ⁠27, Tuesday (7:30 p.m. IST) ** September new home sales - units - October 27, Tuesday (7:30 p.m. IST) ** Federal Reserve interest rate decision - October 28, Wednesday (11:30 p.m. IST) (Reuters poll: no change)

** ‌September personal consumption expenditure, core PCE - October 29, Thursday (6:00 p.m. IST)

** July-September GDP growth advance estimate - October 29, Thursday (6:00 p.m. IST)

** Initial weekly jobless claims for the ​week to October 24 - October 29, Thursday (6:00 p.m. IST)

Published on October 26, 2026