Rupee Volatility in Focus as Government Bonds Remain Stable ahead of Union Budget 2026
As India heads into Union Budget 2026, traders maintain that the rupee’s position will continue to depend largely on global factors rather than domestic factors alone.
The Indian UnionBudget 2026 is scheduled to be presented on February 1, 2026 - a Sunday, an unusual decision that has drawn attention from financial markets.
The Ministry of Finance of the central government, spearheaded by Union Finance Minister Nirmala Sitharaman is set to present the Union Budget at a time of sweeping economic changes, including rate rationalisation processes undertaken for the Goods and Services Tax (GST) regime consequent to the GST Council meeting in September 2025, and ahead of the Income Tax Act, 2025 which is set to come into force from April 1, 2026.
Amidst these changes, markets are faced with heightened volatility in the Indian rupee, however government bonds continue to remain relatively stable.
Last week, the Rupee declined about 1.2%, marking its steepest weekly fall in six months, and later touched an all-time low of 91.9650 against the U.S. dollar. Exporters have held back from dollar sales anticipating further depreciation.
However, not all has been gloomy in the sub-continent. Earlier this week, the currency edged higher as the dollar softened against major peers.
The market sentiment further improved following the conclusion of the India-European Union trade agreement.
The deal is expected to lower tariffs on European cars and wine exported into India, while also opening up increased market access for Indian exports such as electronics, textiles and chemicals. Traders gauge that the Reserve Bank of India is unlikely to allow sharp intraday swings in the currency amid heightened policy-based currency sensitivity.
The United States’ Federal Reserve is also playing a role in influencing the market sentiment, which is set to make its first monetary policy decision for this year. Reports suggest
As per a report by Reuters, Secretary of the U.S. Treasury Scott Bessent has signaled the potential removal of additional 25% tariffs on India as India reduced its import of Russian oil, further improving the global position of the rupee.
While interest rates are widely expected to remain unchanged, traders are closely parsing the policy statement from the Federal Reserve to prepare their moves in the market.
Indian Government Bonds
A point of reassurance is that Indian government bonds have remained stable in the days running up to the Union Budget despite the fluctuations of the rupee. The 10-year government bond yield edged lower to 6.6635%, supported by central bank measures such as bond purchases and a planned $10 billion swap. Investors are also reassured by expectations that the government will continue its fiscal consolidation in a gradual manner.
Meanwhile, economists forecast that the government is set to record gross borrowings in the next financial year, even as bond issuances are expected to remain stable.
While optimism around trade developments and support from the Reserve Bank of India have helped keep government bonds steady, traders say the rupee’s movement ahead of the budget will continue to depend largely on global interest rate trends and flow of foreign capital into the Indian market rather than domestic factors alone.
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