• India G-Sec yields see-sawed within the range of 6.45-6.70%, closing 8 bp higher at 6.59% in December, driven by various factors: uncertainty over RBI further rate cut, depreciation in INR, deficit banking system liquidity, hefty state bond supply and RBI’s announcement of OMO purchases and FX buy/sell swap. • The MPC cut the repo rate by 25 bps to 5.25% keeping the stance neutral and deployed entire toolkit from its arsenal to support the economy including OMO of 1 trln and 3-year FX buy-sell swap of $5 billion because according to the MPC, the high frequency indicators showed early signs of moderation in the Q3FY26. • The policy and the press conference were bond market friendly, signaling an openness to further easing so the knee-jerk reaction of the rate cut was positive on bonds with 10Y bond yield dropping to 6.46%. However, yields hardened on profit-booking after MPC minutes were not pre-committed in hitting at the rate cut, suggesting that the decisions likely to stay data dependent. • Indian rupee breached record low of 91.08/$ as the outlook on the India-US trade deal remained clouded.
