Rupee Roars Back as RBI Drops $9B Bond Bomb—Traders Scramble

The Reserve Bank of India just flexed its monetary muscles with a shock-and-awe $9 billion bond purchase—sending the rupee soaring while bond traders choke on their chai.

Market Mechanics: When central banks open the liquidity firehose, currencies either drown or dance. Today, the rupee chose violence—bullish momentum crushed bears as USD/INR plunged 1.2% intraday.

Behind the Curtain: This isn’t monetary policy—it’s financial theater. The RBI’s ’sterilized intervention’ lets them print rupees to buy dollars while pretending inflation doesn’t exist. Classic emerging markets playbook.

Finance Jab: Meanwhile, crypto traders smirk—watching fiat currencies yo-yo on central bank whims while Bitcoin’s hard cap stays... hard. Gold 2.0, anyone?

RBI lowers yields with heavy bond purchases

India’s 10-year bond yield ended Friday at 6.3538%, down 1 basis point from the previous week. That marked the seventh week in a row of declines, totaling a drop of 35 basis points. 

Traders expect yields to stay between 6.30% and 6.40%, but said that may change depending on updates in India-Pakistan tensions and the outcome of the upcoming US Federal Reserve meeting on May 7.

The central bank has already bought 3.65 trillion rupees of bonds through open market operations (OMOs) so far in 2025. On top of that, it picked up another 388 billion rupees through secondary market purchases.

That trend will continue with the $8.88 billion bond purchase this week, followed by two smaller ones of 250 billion rupees each later in May.

Radhika Rao, senior economist and executive director at DBS Bank, said this injection could help with “policy transmission and support growth amid global uncertainties.” 

Radhika also said the move may be aimed at absorbing the liquidity loss expected from maturing dollar-forward contracts over the next three months.

Investors track Fed decision, PMIs, and trade data

Market attention is also on the US jobs report, which came in stronger than expected. That pushed the US dollar higher against most major currencies on Friday. Traders said the strength in the dollar added pressure to the rupee and other Asian currencies ahead of the Fed’s next decision.

The Federal Reserve is expected to keep interest rates unchanged, but analysts are watching Jerome Powell’s comments closely. His tone will be key in figuring out where the US economy is headed next. The uncertainty comes as tariff policies continue to reshape trade.

India’s traders are also keeping an eye on a potential US-India trade agreement and how border tensions develop. All of this plays into the rupee’s direction this week.

Swap traders are waiting for clarity. India’s overnight index swap rates are expected to stay steady at the start of the week. But the one-year, two-year, and five-year swap rates have all dropped sharply over the last five weeks. Traders said they could fall further depending on what the Fed announces.

Cryptopolitan Academy: Want to grow your money in 2025? Learn how to do it with DeFi in our upcoming webclass. Save Your Spot