(Bloomberg) -- Sovereign bonds in India rallied after the central bank unexpectedly cut its key rate and dropped its hawkish stance citing easing inflation, providing relief to traders concerned about a record government borrowing program. The rupee reversed losses.

The repurchase rate was lowered by 25 basis points to 6.25 percent, the first reduction since August 2017. The decision was predicted by just 11 of 43 economists surveyed by Bloomberg News, with the rest expecting no change.

“While this is clearly a positive surprise as the RBI acted much quicker than expected, we are somewhat concerned with longer-term fiscal dynamics,” said Eugene Leow, a rates strategist at DBS Bank Ltd. in Singapore. “Higher bond sales across all tenors should cause the curve to shift higher.”

Bond investors have become skittish about the health of the country’s finances after Prime Minister Narendra Modi’s government on Feb. 1 unveiled a record $100 billion borrowing to bridge a wider-than-expected deficit for the fiscal year starting April 1. The yield on the most-traded 2028 sovereign bond surged 13 basis points that day, the most since May.

The yield fell 5 basis points to 7.51 percent on Thursday, cooling from 7.57 percent just before the policy decision. The rupee weakened as much as 0.3 percent per dollar but soon recovered to 71.47.

The RBI joins its peers including the Reserve Bank of Australia in dialing back their hawkish stance amid subdued inflation and stable currencies. Australian central bank chief Philip Lowe on Wednesday shifted to a neutral policy outlook, acknowledging increased economic risks. The Philippines is expected to ease much of its hawkish commentary of last year and follow Thailand’s example of standing pat. In Indonesia, the central bank has said the policy rate is close to its peak, and its decision is due on Feb. 21.

Still, the policy easing may add to the woes of the Asia’s worst-performing major currency this year, some analysts said.

“I think the markets will view such a policy move as premature and the rupee will be the main victim of this,” said Prakash Sakpal, an economist at ING Groep NV.

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