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.
Reserve Bank of India maintains repo rate at 5.50% in August 2025. This decision follows earlier rate cuts and CRR reduction. Experts suggest focusing on high-rated bonds with 2-4 year duration. A possible rate cut may occur in October 2025. Investors should consider moderate-duration fixed income strategies. Global economic factors and Federal Reserve policies will influence future decisions.
“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)