MUMBAI, Aug 2 (Reuters) - Foreign banks posted their biggest monthly purchase of Indian government bonds in two-and-half years in July, as bets of aggressive rate hikes from the U.S. Federal Reserve as well as the Reserve Bank of India eased considerably.

India's 10-year benchmark bond yield fell 13 basis points in July, its biggest drop in 15 months. On Tuesday it was trading at 7.1901% at 0727 GMT.

Foreign banks bought a net 147 billion rupees ($1.87 billion) worth of government debt in July, their biggest such purchase since February 2020, after having sold net debt worth 400 billion rupees between January and June.

"Most foreign banks were short and covered their positions as the global scenario changed rapidly and even Indian bond yields showed stiff resistance," said Abhishek Upadhyay, senior economist at ICICI Securities Primary Dealership.

The 10-year U.S. Treasury yield dropped 33 basis points in July, as traders expect recession fears to cap the Fed's rate hikes and the U.S. central bank may also have to reverse its hiking cycle next year.

The Reserve Bank of India's (RBI) monetary policy decision is due on Aug. 5, with views on the quantum of rate increase split between 25 basis points and 50 basis points, according to a Reuters poll of economists.

The RBI has hiked its repo rate by 90 bps since May, and market participants have already factored in at least a 25 bps move.

"The five-year part of the swap curve is a good indication about the drastic change in interest rate outlook within a span of few weeks, and the next action from these players will be based on Friday's commentary," a debt trader at a private bank said.

The five-year overnight indexed swap rate crashed 54 bps to end at 6.32% in July, its biggest fall since December 2008. The rate was last at 6.23%.

($1 = 78.6100 Indian rupees) (Editing by Shounak Dasgupta)