What should fixed income investors do post RBI Monetary Policy Meeting

The Reserve Bank of India (RBI), in its latest August 2025 Monetary Policy Committee (MPC) meeting, decided to hold the repo rate steady at 5.50%, retaining its neutral stance.

This comes after a significant 100-basis-point cut in June 2025 and a reduction in the Cash Reserve Ratio (CRR) to 3% by the end of 2025, moves aimed at boosting liquidity and supporting growth.

Cautious stance despite earlier easing

Naval Kagalwala, COO & Product Head at Shriram Wealth Ltd., said that with inflation expected to align with the RBI’s 4% target in the near term — but projected to rise to 4.9% in the April–June 2026 quarter — the scope for further aggressive rate cuts is limited.

“While the inflation is expected to be in line with RBI’s 4% target for now, the expected 4.4% terminal rate and a forecast inflation of 4.9% in the April–June 2026 quarter reduce the possibility of further rate cuts. We continue with our outlook that the short/mid end of the corporate bond yield curve will continue to outperform due to a mix of liquidity and good spreads vis-à-vis G-secs,” he said.

“We suggest investors to look at funds investing in high-rated bonds maintaining duration of 2 to 4 years. This includes categories such as Corporate Bond funds, Banking & PSU funds, Short Duration and Target Maturity funds,” Kagalwala explained.

Prolonged pause, selective long-end opportunities

Umesh Sharma, CIO – Debt at The Wealth Company Mutual Fund, said the MPC appears set for a prolonged pause, though a modest 25-basis-point cut toward the end of the year remains on the table.

“Investors can stay engaged in moderate-duration fixed income strategies and selectively explore longer-duration opportunities, depending on their risk appetite,” Sharma suggested.

October cut possible, Fed policy in focus

Hitesh Jain, Strategist at YES SECURITIES (India) Ltd., believes the RBI could deliver a calibrated 25-basis-point rate cut in the October 2025 policy meeting, citing an uneven economic recovery and ongoing trade tensions.

“If growth falls short of the RBI’s FY26 GDP target, the probability of two additional rate cuts rises meaningfully. Further easing by the US Federal Reserve could also give the RBI more room to act without triggering capital outflows,” Jain noted.

What Should Investors Do?

For fixed income investors, the consensus is clear: focus on quality, moderate-duration strategies while keeping a close watch on upcoming global and domestic triggers.

The current environment favors positioning in the short to mid-end of the curve, with tactical moves into the long end for those with higher risk tolerance.

(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)